Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
May 24, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Assessee fails whether the enhancement in its income is considered as on account of a TP adjustment or for denial of deduction u/s. 10A, i.e., from the standpoint of both Explanation 1 or 7 to s. 271(1)(c) – the levy of penalty upheld - AT
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The fact that the TPO himself has admitted that assessee is a market leader and it will be extremely difficult to identify the comparables - adjustment made by the AO is not justified - AT
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The appeal filed by the assessee against the order passed by the AO u/s 143(3) of the Act on 30-9-2010 in pursuance of the directions of the DRP was not maintainable before the CIT(A) - AT
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Deduction u/s 80IB - development of SEZ - authorized operation - AO does not have any jurisdiction to question the validity or the legality of authorized operations which have been approved by the BOA/Central Government - AT
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Charitable purpose u/s 2(15) - The education for the purpose of earning profits, imparting knowledge, which is required for getting employment are not covered by the provisions - AT
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ALP - Once TNMM has been applied to the assessee company's transaction, it covers under its ambit the Royalty transactions in question too and hence separate analysis and consequent deletion of the Royalty payments by the TPO in the instant case seems erroneous - AT
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The foreign exchange loss incurred by the assessee on account of entering into forward contracts with the banks for the purpose of hedging the loss in connection with his import/export business of diamonds cannot be held to be a speculative loss - AT
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Society is not doing any charitable work for uplift of general community and using its funds only for uplift of Sikh community by providing education in various fields, which is contrary to the provision of Section 80G(5)(iii) - CIT has rightly rejected the application - AT
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Assessee is entitled to deduction u/s 80IB(11A), in respect of income derived from the new undertakings, warehouses, set up and operated from 1.4.2001 for storage, handling and transportation of food grains - AT
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Book adjustments u/s 115JB - Insurance company - Minimum alternate tax (MAT) - these companies cannot be treated differently for the purpose of sec. 115JB - provisions of sec. 115JB are not applicable - AT
Customs
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Classification of activated Bentonite clay imported from abroad - correct classification of activated Bentonite is CTH 38.02 and not CTH 25.08 - AT
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Valuation of goods - US list price as worked out by the Revenue should be the basis and duty demand confirmed on that basis and assessments should be finalized on that basis - AT
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As there is no declaration in the IGM any of the appellant’s name; further no bill of entry or bills of entry has been filed by any of the appellants, therefore, the allegation of undervaluation or misdeclaration of quantity is not sustainable - AT
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Exemption under Notification No. 17/2001-Cus. - delay in submission of end-use certificate - ubstantive condition of exemption has been satisfied - exemption allowed - AT
Service Tax
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The fact of wrongful availment of Cenvat credit came in the knowledge of the appellant in October 2009 and thereafter they have stopped taking the credit - but failed to reverse the credit, this act of the appellant would amount to malafide intention to avail inadmissible credit. - AT
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CENVAT Credit - Debit notes - when the debit note contains all the particulars which are required to be mentioned in an invoice, just because the document is titled ‘debit note’ instead of ‘invoice’, the Cenvat credit cannot be denied - AT
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Demand of service tax - Double taxation - sub-contractor - pre-Cenvat credit Rule 2004 era - eparate confirmation of service tax against the sub-contractor would not be justified - AT
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Valuation of goods - outdoor catering services - whether cost of value of LPG cylinders supplied free by M/s. ITC would be taxable or not - prima facie cost is not includible - AT
Central Excise
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Extended period of limitation - second demand show cause notice, also for the period prior to the date of the visit of the officers, cannot be considered as time barred when the same is issued within a period of five years from the ‘relevant date’ - AT
Case Laws:
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Income Tax
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2014 (5) TMI 748
Validity of notice u/s 148 of the Act – Reopening of assessment – Held that:- All the noticees were third parties who according to the AO did not respond and could not also be served - The replies made by the third parties are not and could not have been in the possession or control of the assessee - the assessee could not have relied upon them either before the AO or before the CIT (A) - There is nothing to show that the third parties appeared before the CIT (A) - In the absence of the third parties, the contents of the documents could not have been proved - neither the existence of the documents nor the contents were proved - The appellate authority proceeded to reverse the orders u/s 147/143(3) of the Act on the basis of documentary evidence of which neither the existence nor the contents were proved. So-called additional evidence was permitted to be adduced without giving any opportunity to the AO to examine them in gross violation of the principles of natural justice as also the provision contained in sub-rule (3) of Rule 46A - The finding made by the CIT(A) is equally perverse - The genuineness of the transaction was the issue to the knowledge and notice of the assessee – the sale of investment to the tune of ₹ 5,51,420 but cheque deposits were more than crore - The finding of the Tribunal is based on the inadmissible additional evidence adduced by the assessee before the CIT (A) – thus, the order of the Tribunal is set aside – Decided in favour of Revenue.
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2014 (5) TMI 747
Deletion of addition – Unexplained income, investment and purchase of agricultural land – Held that:- No substantial question of law worth consideration in the case - The concurrent findings recorded by the CIT(A) and ITAT are essentially the findings of facts and have obviously been rendered after due appreciation of the material on record, as also on the relevant considerations - The Tribunal appears justified in observing that Shri Jessa Ram was neither examined in the presence of the assessee nor was allowed to be cross-examined by the assessee and hence, his statement could not have been relied upon against the assessee. The deposits made by Shri Jessa Ram in his bank account cannot be taken as proof of the receipt from the assessee on that particular date - the procedure and system of accounting of a third party was not a matter within the control of the assessee and merely with reference to the entries made by a third party, conclusion could not have been drawn against the assessee-respondent - the CIT(A) and the Tribunal have set aside the additions made by the AO after being satisfied that all the payments and receipts were fully explained - the matter only relates to the findings of facts and rests on appreciation of evidence -The appellate authorities have recorded the findings of facts concurrently after due and proper appreciation of evidence – Decided against Revenue.
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2014 (5) TMI 746
Levy of penalty u/s 271(1)(c) of the Act – Inaccurate particulars furnished - Validity of revision – Whether the revision by the assessee of its return/s is valid – Held that:- Reference to the TPO for the current year/s, which for both the years, being on 01.09.2005 and 23.01.2006 for the two years respectively, is much prior to the date of ‘revision’, is without doubt relevant in-as-much as an enquiry with regard to the ALP of the international transactions, including for marketing services, would follow - even the notices to the assessee by the TPO would have been issued prior to the revision - CIT(A) in fact stating of the proceedings before the TPO being in progress at the relevant time - The ‘revision’ made in anticipation of the proposed adjustment is thus not voluntary but guided by the motive to eschew an adjustment and, resultantly, the debilitating impact of section 92C(4) - Voluntariness, and bona fides are essential ingredients of a valid revision u/s.139(5) - the assessee is well aware of having made a claim per its return, being in fact made year after year, for which it is unable to state, much less establish, any basis - In any case of the matter, the revision is outside the purview of section 139(5) for A.Y. 2005-06 in-as-much as the return is filed outside the time limit prescribed there for under law, which expires on 31.03.2007, while the second return was filed on 14.12.2007. Denail of claim of deduction u/s 10A of the Act – Held that:- The ‘revised return’ is non-est in law and the only valid return by the assessee is its original return/s, whereby claim for marketing expenses has been made - notwithstanding a claim to revision, the enhancement of its income is only in consequence of its adjustment to the returned income u/s.92C(4) r/w.s. 92CA(4) - The rigor of section 92C(4) is thus attracted, and despite the assessee’s income bearing the same quality or character, would stand disqualified to that extent for being allowed deduction u/s.10A in its respect. The disclosure for both the years as not voluntary - The assessee has in fact been claiming the expenditure, stated to be by way of reimbursement to its Associate Enterprise (AE), year after year since inception, failing to exhibit or substantiate its case for any of the years - It is this that led the Revenue to claim the disclosure (disallowance) as having been made on being cornered, with the view to preempt an adjustment and, further, avoid the rigor of section 92C(4), i.e., vide first proviso - the assessee claims to have made the payment from a commercial perspective, finds our independent endorsement - the assessee’s claim to be bald and de hors the facts borne out by the material on record – only voluntariness of the withdrawal of the expenditure could under the circumstances exclude penalty, while the withdrawal was not to be not so, but guided the by consideration of being unable to prove its claim, as indeed by all concerned in both in the quantum and the penal proceedings - The assessee can be said to have under the circumstances made a bogus claim per its original return/s - the adjustment to income in assessment arising on account of a TP adjustment, so that money to that extent has already either not been received in or, as the case may be, gone out of the country, corresponding deduction u/s.10A, to which it may otherwise be entitled to in law, shall per force law be not available to it - The assessee has no case at the threshold, which gets aborted by it disclaiming its transaction. Complete disclosure of facts as per audit report u/s 92E of the Act - The disclosure per the audit report u/s 92E forming part of its return/s is both false and misleading - the argument of complete disclosure, unless the same is true, is of little consequence in law and, in fact, itself false - Explanation 7, or Explanation 1 to section 271(1)(c) is abundantly clear - Relying upon CIT Versus MAK DATA LTD. [2013 (1) TMI 574 - DELHI HIGH COURT] - there has been both concealment as well as furnishing inaccurate particulars of income - the onus to substantiate is on the assessee to save itself from penalty, which is completely absent – the assessee fails whether the enhancement in its income is considered as on account of a TP adjustment or for denial of deduction u/s. 10A, i.e., from the standpoint of both Explanation 1 or 7 to s. 271(1)(c) –thus, the levy of penalty is upheld – Decided against Assessee.
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2014 (5) TMI 745
Late grant of refund - Entitlement for interest on interest u/s 244A of the Act – Held that:- Following CIT v/s Gujarat Fluoro Chemicals [2013 (10) TMI 117 - SUPREME COURT] - the provisions of section 244A only provides for interest on refund under various contingencies, and only the interest as provided in the statute can be claimed by the assessee and no other interest on such interest, which has been to be computed u/s 244A of the Act - Thus, order of the CIT(A) is set aside and the matter is remitted back to the AO who shall compute the interest which is allowable u/s 244A – Decided in favour of Assessee.
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2014 (5) TMI 744
Non-speaking order - Assessee in default u/s 201(1) of the Act or not – Payment of income chargeable to tax not made – Requirement to deduct TDS u/s 195 of the Act – Purchase of software – Scope of term Royalty u/s 9(1)(vi) of the Act – Held that:- Assessee contended that the order passed by the Commissioner is not a speaking order as none of the contentions of the assessee have been dealt with while rejecting them and adjudication has been made solely based on a case law in which facts were different as also assessee’s contentions were not dealt with – Relying upon Motorola Inc. vs. Dy. CIT [2005 (6) TMI 226 - ITAT DELHI-A] - where the software imported which is a shrink wrapped software or off the shelf software, same amounts to purchase of goods and not payment of royalties - The payment is for use of copy rights article and not for acquiring any copy right - the payments for import of software do not amount to payment of royalty chargeable u/s 9(1)(vi) of the Act - The payments partakes the character of purchase and sale of goods - the payee has no permanent establishment in India - no income is deemed to accrue or arise in India – thus, the provision of section195 is not applicable to the payment - the assessee has filed an application for admitting the additional evidences – the entire issues require a fresh adjudication at the level of CIT(A) – thus, the order of the CIT(A) is set aside and the matter is remitted back to the CIT(A) for fresh adjudication – Decided in favour of Assessee.
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2014 (5) TMI 743
Business income treated as STCG – Profit from sale of constructed area/allotted flats – Held that:- CIT(A) was rightly of the view that the constructed area/allotted flats received by the assessee as consideration from the developer against transfer of its immovable property were in the nature of capital assets and the profit arising from the sale thereof was chargeable to tax in the hands of assessee as capital gain and not business income - the assessee has also not been able to put forth any contention or material to show that the surrender of constructed area /allotted flats to the developers constituted business activity of the assessee – the order of the CIT(A) is upheld – Decided against Assessee. Deduction of various expenses – Held that:- The deduction on account of expenses incurred by the assessee on cost of improvement of the assets sold or in connection with the transfer of capital assets only can be allowed - assessee has contended that some of the expenses claimed by the assessee are falling in this category – thus, the matter is remitted back to the AO for verification of the claim – Decided in favour of Assessee. Amount added on account of security deposits adjusted - Surrender of constructed area /allotted flats to the builder – Held that:- CIT(A) himself took note of the fact that the security deposit was received by assessee in lieu of 1950 sq. ft. area – he overlooked the fact that the amount of security deposit received by the assessee was adjusted against the sale consideration receivable against the area of 5270 sq.ftl including the area of 1950 sq. ft surrendered during the year under consideration and what the assessee actually received was only Rs.49,86,500 - The assessee thus had not received the amount of security deposit over and above constructed area of 8635 sq ft. and since the said security deposit was adjusted against the area of 1950 surrendered by the assessee, the consideration received by the assessee was only to the extent of 8435 sq. ft built up area, the value of which was already declared by the assessee while computing the LTCG arising from the sale of land - the addition made by CIT(A) by way of enhancement is not sustainable – Decided in favour of Assessee. Enhancement of amount – Held that:- CIT(A) observed that security deposit of Rs.25,00,000 was received by assessee from the developer as per the development agreement on the condition that the assessee would have an option to adjust the same by surrendering the constructed area of 1950 sq.ft. allotted to it - The rate for surrendering the area of 1950 sq. ft in the case of adjustment of security deposit thus was fixed at the time of execution of development agreement and there was no case of making any enhancement on the part of CIT(A) by adopting the higher rate at which other constructed areas was surrendered by the assessee to the developer – thus, the addition made by the CIT(A) is set aside – Decided in favour of Assessee.
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2014 (5) TMI 742
Validity of DRP’s order u/s 143(3) r.w.s 144C of the Act – Rejection of transfer pricing documentation – Transfer pricing adjustment – Selection of comparables – Held that:- The Assessing Authority has to follow the directions of the DRP and this mandate is contained u/s. 144C(10) of the Act - the DRP has merely recorded a finding that Cyber Media (India) Online Ltd. is broadly comparable to the assessee company - The finding appears to be a finding necessary for disposal of objections raised by the assessee to the proposed assessment order made by the assessing authority - it is not that same thing as directions of DRP which it is empowered to give u/a 144C(5) r.w.s 144C(10) of the Act - The peculiar finding so given by DRP was merely for the guidance of the assessing authority and not a binding direction - If the assessing authority committed any procedural lapse in taking guidance from the finding, such a lapse does not impinge upon the legality of the order framed within the powers vested in him under the Act - the assessment cannot be held to be void or infructuous in the case. The assessing authority is the best judge of the situation and has to arrive at its conclusion without any bias and on rational basis - The Appellate Tribunal shall by itself not embark enquiry afresh into the facts and comment upon the similarities or dissimilarities of the comparables on the basis of new pleas which in fact is under the domain of the assessing authority - It is also claimed by the assessee and has fairly being admitted by the Revenue that the assessee did not have reasonable and effective opportunity of explaining its case before the authorities – thus, the matter is remitted back to the Assessing Authority for fresh adjudication – Decided in favour of Assessee.
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2014 (5) TMI 741
Part deletion of disallowance of financial charges paid – Held that:- Following AP. State Housing Corporation Limited [2011 (1) TMI 1271 - ITAT HYDERABAD] - assessee clearly proved that the assessee company is not in the business of construction of houses - the income of the assessee corporation only comprises of admission fees, supervisions charges, interest, differential cost of component and other material and managerial subsidy from the State Government - the lower authorities are not correct in disallowing the interest payment to various commercial banks and financial institutions – the AO is directed to treat the interest receipts as the income of the assessee Corporation in the respective assessment years - in the absence of anything to the contrary brought on record by the Revenue, there was no infirmity in the order of the CIT(A) – Decided against Revenue.
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2014 (5) TMI 740
Transfer pricing adjustment u/s 92CA(3) of the Act – Import of finished goods for resale – Computation of ALP of international transaction – Held that:- The amendment u/s 92C(4) by Finance Act, 2007 w.e.f. 01.06.2007 is merely procedural in nature - the AO after receipt of the order of the TPO has again required the assessee to submit his objection to the addition proposed by the TPO and after considering such objections, the AO has made the adjustment - the ground of the assessee that AO has made the addition without making any independent examination is devoid of any merit and is dismissed - the AO/TPO are well within their rights to reject the TP study filed by the assessee and determine the ALP of the transaction independently, though such determination may be challenged by the assessee. The TPO has accepted the ALP of all other international transactions except in respect of import of goods for resale/for packaging and sale - The TPO by rejecting the segmental analysis and the comparables selected by the assessee has determined the operating margin at entity level by considering 5 other comparables - the difference between the operating margin of the assessee and the comparable cases is determined at 3.83% (16.50% - 12.67%) and this difference is applied to total turnover of Rs.412.14 crores to make adjustment of 15.75 crores in the ALP of the finished goods imported by the assessee - adjustment is to be restricted to the international transaction and not to the entire turnover of the assessee – Relying upon Deputy Commissioner of Income-tax*, Circle 16(3), Mumbai Versus Ankit Diamonds [2010 (11) TMI 565 - ITAT, MUMBAI] - Determination of ALP of an international transaction has to be only at the transaction level or at the level of a class of transactions - TPO is not authorized to determine the net operational profits at the enterprise level but he shall determine only ALP of international transaction. The fact that the TPO himself has admitted that assessee is a market leader and it will be extremely difficult to identify the comparables and the fact that neither in earlier years nor in subsequent years any adjustment has been made by comparing the results at entity level - the international transaction entered by the assessee with the AE even at entity level is at arm's length and therefore the adjustment made by the AO is not justified - Decided in favour of Assessee. Disallowance of claim of investors written off – Held that:- Disallowance of claim of investors written off - The details of inventory written off as well as procedure for written off is explained before the AO – as decided in assessee’s own case for the earlier assessment year, it has been held that, the write off for obsolesce of such identified items is allowable deduction - no provision is created in books of accounts but only the nomenclature of provision for obsolesce is used - in the balance sheet also no such provision is appearing either in the liabilities side or as reduction from asset side – thus, the claim of the inventory written off is allowed – Decided in favour of Assessee. Disallowance out of travelling and conveyance expenses – Held that:- The AO has stated that assessee has produced entire module, bill and vouchers of expenses for verification as desired - in making disallowance out of the expenses after submission of month wise details of the expenses by the assessee, AO has not required assessee to furnish the details of any specific expenses - on these expenses, FBT is paid and that such ad hoc disallowance is not made in the past - the AO is directed to set aside the disallowance of Rs. 50 lacs made by him – Decided in favour of Assessee. Disallowance of advertisement and sale promotion expenses – Held that:- Group M Media India Pvt. Ltd. is an Indian Co. as is evident from the company master details – the company is incorporated on 29.11.2001 having registered office at Mumbai - it is an Indian Co. as defined u/s 2(26) and is a company resident in India u/s 6(3) - All payment made to this company towards advertisement charges is in Indian currency - Tax is deducted at source on such payment u/s 194C - Sec. 195 is applicable when payment is made to a non-resident - payment to Group M Media India Pvt. Ltd. is a payment to resident and not a non-resident - section 195 is not attracted. The disallowance made by the AO is incorrect, against law and the same is set aside - So far as expenses on trade incentive is concerned, the incentives given as per various schemes in earlier years has been allowed - The observation of AO that services has been received by the assessee against the payment - he should have deducted tax at source on the value of the gift is ill founded in as much as the payment is not against the services but against the sale of goods to the distributors and therefore TDS provisions are not applicable - the disallowance made by the AO is set aside – Decided in favour of Assessee. Disallowance of depreciation on vehicles – Evidences not submitted – Held that:- All the vehicles which are referred in the assessment order are registered in the name of the assessee – the assessee is the owner of the vehicles and it is entitled to depreciation on these vehicles - the disallowance made by the AO is set aside – Decided in favour of Assessee. Addition of DDA provision – Details could not be furnished – Held that:- The amount is appearing in the details of other liabilities as old provision - No material is placed by the department that the provision is made during the year by debit to P&L A/c - similar addition made in AY 96-97 while processing the return was deleted by the AO himself in order u/s 154 dated 30.06.1998 - no amount is debited to the P&L a/c during the year on account of the provision – thus, the addition is set aside – Decided in favour of Assessee. Disallowance out of miscellaneous expenses – Held that:- The AO has made the disallowance without specifying any particular expenses which is not verifiable or not incurred wholly and exclusively for the purpose of business when he has given a finding that bills and vouchers of expenses as desired were produced for verification and examined on test check basis - ad hoc disallowance is not approved by the DRP in A.Y. 07-08 – thus, the ad hoc disallowance made by AO is set aside – Decided in favour of Assessee.
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2014 (5) TMI 739
Addition to total income – Transfer pricing adjustment – International transaction with AE – Export of bathrobes – Held that:- Following Welspun Zucchi Textiles Ltd. Versus Assistant Commissioner of Income-tax-2(3), Mumbai [2013 (9) TMI 336 - ITAT MUMBAI] - the DEPB benefit was not taken into consideration by the AO/TPO for the purpose of working out the profit margin of the assessee whereas such benefit was taken into account in the comparable cases while working out their profit margin as found by the CIT(A) – thus, the matter is remitted back to the AO for re-computation of the profit margin of the assessee company after taking into consideration the DEPB benefit as a part of its turnover and to delete the addition made by way of TP adjustment if the difference between the profit margin so computed and the average profit margin of the comparables is found to be within the safe harbor limit of 5% as claimed by the assessee – Decided in favour of Assessee. Disposal of appeal of the CIT(A) u/s 143(3) of the Act – Directions issued by DRP u/s 144C of the Act – Held that:- The order of assessment passed u/s 143(3) of the Act in pursuance of the directions of the DRP is not considered as an order appealable before the CIT(A) w.e.f. 1-10-2009 as per the amendment made in the relevant provisions of section 246-A of the Act by the Finance (No.2) Act, 2009 - The appeal filed by the assessee against the order passed by the AO u/s 143(3) of the Act on 30-9-2010 in pursuance of the directions of the DRP was not maintainable before the CIT(A) and the CIT(A) clearly exceeded his jurisdiction in entertaining and disposing of the appeal filed by the assessee – the order of the CIT(A) in disposing of the appeal filed by the assessee against the order passed by the AO u/s 143(3) in pursuance of the directions of the DRP is not valid in the eye of law and the same is liable to be cancelled – Decided in favour of Revenue.
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2014 (5) TMI 738
Disallowance u/s 40(a)(ia) of the Act – Sales commission paid to foreign agent – Applicability fo section 195 of the Act - Held that:- There cannot be any dispute with regard to the services rendered by the foreign party - The commission bill of M/s. Business International, Bangladesh for USD 3954.38 and also the details of foreign commission from 1.4.2006 to 31.3.2007 furnished by the assessee in the papers furnished clearly substantiate the claim of the assessee as to the services rendered by the foreign party - there was no justification for the CIT(A) to dispute the very rendering of services by the foreign party to the assessee, so as to justify the disallowance under the provisions of S.37(1) itself - the payment has been made by the assessee through direct remittance to the party outside India - there is no reason to dispute the claim of the assessee that it is under no obligation to deduct tax at source in terms of S.195 of the Act - the applicability of provision of S.195(2), since the sum paid to non-resident is outside the scope of income taxable under the Income Tax Act. Relying upon GE India Technology Centre (P.) Ltd. v. CIT [2010 (9) TMI 7 - SUPREME COURT OF INDIA] - a person is liable to deduct tax u/s 195(1) only when the payment is made by him is chargeable under the provisions of the Act - The payer becomes an assessee in default only when he fails to fulfil the statutory obligation u/s 195(1) and if payment does not contain the element of income, the payer cannot be made liable - the commission paid by the assessee does not contain any element of income taxable in India, the provisions of S.195 does not apply - In the absence of any certificate with regard to non-taxability of the commission to income-tax in India, it has been decided in Millennium Infocom Technologies Ltd. v. Asstt. CIT [2008 (1) TMI 437 - ITAT DELHI-E] - such a certificate from the Department is not essential, as the payer has an option to obtain such a Certificate from the Accountant instead of approaching the Revenue authorities, before making a payment to non-residents - there is no justification for any disallowance in respect of commission payments made by the assessee to its foreign agent, either in terms of Section 40a(ia) or u/s 37(1) of the Act – Decided in favour of Assessee.
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2014 (5) TMI 737
Deduction u/s 80IB - development of SEZ - authorized operation - transfer of bare shells buildings by the assessee to co-developer - as per the revenue, as per sec. 9(2) only Board of Approval is empowered to grant approval of SEZ or authorized operations in the SEZ and not the Ministry of Commerce - Admission of additional evidence – Application of provision of Rule 46A(1) clause (c) and (d) of the Rules - Held that:- The additional evidences form integral part of the decision making process of the Board of Approval and are necessary for arriving at correct legal conclusion These evidences are very crucial and necessary for deciding the legal status of the appellant under the SEZ Act as well as its consequential entitlement or otherwise of deduction u/s. 80IAB of the Act - if the evidence is genuine and reliable, then the assessee should not be denied the opportunity to produce such evidence and it would be incorrect to shut out an assessee in the process of administration of justice from leading evidence to prove its case. As per the provisions of clause (a) and (b) subrule (3) of Rule 46A, the AO is duty bound to examine the evidence or document produced by the appellant and/or to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant – the evidences are in the nature of further clarifications, form integral part of the correspondence between Department of Commerce and Department of Revenue before granting the approval vide letter dated 01.06.2009, go to the very root of matter in deciding the eligibility or otherwise of the appellant's claim of deduction u/s. 80IAB of the Act and need to be taken into account in deciding major grounds of appeal - the provisions of clause (c) and (d) of sub-rule (1) of Rule 46A are clearly attracted in the assessee's case – the order of the FAA is comprehensive and reasoned, thus, there is no reason to interfere in the order – Decided against Revenue. Allowability of claim of deduction u/s 80IAB of the Act - Profits derived from transfer of bare shells buildings - Deductions in respect of profits and gains by an undertaking or enterprise engaged in development of Special Economic Zone – Held that:- There was clear approval to both the assessee and the co-developer for development, operation and maintenance of the SEZ wherein the initial arrangement by the assessee was to carry out part development and lease out the land and the building thereupon to co-developer for a lease period of 49 years - The assessee and co-developer later on executed an addendum to the co-development agreement dated 29/11/2006, wherein the lease of land continued to be for 49 years and the bare shell buildings constructed by the assessee were proposed to be transferred to the co-developer for a development consideration of Rs.4,845 per square fit - From the clarifications dated 18/1/2011 and 20/1/2011 issued by the Ministry of Commerce as well as from the letter of Director CBDT their remains no scope for any doubt that this disclaimer is applicable only to transfer of land in the guise of long term lease by receiving lease rentals/down payments/premium etc commensurate with the sale value of land as provided in the letter dated 6/5/2009 of the Director CBDT. CIT(A) was rightly of the view that once the authorized operations were approved by the Board of Approval vide letter dated 19/6/2007, there was no further requirement of getting the same authorized operations approved again in terms of approval letter dated 1/6/2009 - No further approval of transfer of bare shell was required since the agreement dated 20/3/2008 providing for transfer of bare shell to the co-developer for an agreed development consideration forms integral part of approval letter dated 1/6/2009 issued by BOA - the AO was having no jurisdiction or authority to sit in the judgment of the Board of Approval and challenge the validity of approval given by the Ministry of Commerce. CTI(A) has rightly agreed with the plea of the assessee that the tax disclaimer condition mentioned in the co-developer approval is primarily to be in by the BOA in the approvals granted to put a curb on the wrong practice of leasing the land for long periods and receiving one time payment in the form of lease rentals/down payments/premium etc. which tantamount to sale of land in the guise of long term lease - The assessee has obtained requisite approvals from the BOA in most transparent manner by disclosing not only development consideration but also the basis for determining the same - the consequential benefits that is available to a developer under the Income Tax Act cannot be denied - The AO does not have any jurisdiction to question the validity or the legality of authorized operations which have been approved by the BOA/Central Government - all the conditions as required to be specified under the SEZ Act/Rules are fulfilled and the assessee is approved developer for all the intent and purposes of Section 80 IAB of the Act – Decided in favour of Assessee.
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2014 (5) TMI 736
Rejection of application for registration u/s 12A(a) of the Act - Objects of the Trust are mixed charitable and commercial – Held that:- The main and generic objects of the Trust are 'education', being a charitable activity for the general public utility - Income and Expenditure statement filed does not indicate the spending of the same for the objects narrated by the DIT (E) - it is a premature to deny the registration of the Trust u/s 12AA of the Act – Relying upon Sole Trustee, Lok Shikshana Trust [1975 (8) TMI 1 - SUPREME Court] - "Education" is a broad and generic term and the same should be understood in the context of the educational objects of the Trust – also in Samria Charitable Trust Versus DIT (E), Mumbai [2013 (6) TMI 330 - ITAT MUMBAI] it has been held that Education has different shades and all kinds of education are not covered by the provisions of section 2(15) of the Act - The education for the purpose of earning profits, imparting knowledge, which is required for getting employment are not covered by the provisions - the assessee is yet to commence its activities - there is neither institution nor any coaching classes conducted by the assessee as stated by the Managing Trustee at Bar - the matter should be re-visited by the DIT (E) for examining the basic facts – thus, the matter is remitted back to the DIT(E) – Decided in favour of Assessee.
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2014 (5) TMI 735
Penalty u/s 271(1)(c) of the Act – Cash purchases – Confirmation of quantum addition - Held that:- CIT(A) has rightly analysed and concluded that it was indeed not a fit case for imposition of penalty - The mere fact that the sale vouchers were titled as cash memos does not obliterate the fact that the vendor was paid for the bricks subsequently and it is thus a reasonable explanation that purchases were made on credit - There is nothing on record to establish, beyond a reasonable doubt, that any cash purchases did take place - the AO has not given any independent reasons for imposing the penalty but has merely referred to and relied upon the fact that the Tribunal has confirmed the quantum addition. Findings in the quantum proceedings have an important role to play in penalty proceedings as well in the sense that these findings can be referred to and relying upon in the penalty proceedings as well, but the confirmation of quantum addition cannot be reason enough for imposing the concealment penalty u/s 271(1)(c), as has been done in the case - Penalty is and cannot be an automatic consequence of quantum addition and be justified on that count – AO cannot summarily make sweeping generalizations without pointing out in what manner the cases are distinguishable and why the legal propositions laid down by the judicial precedents do not apply to the facts of the case – the very well-reasoned order of the CIT(A) is upheld – Decided against Revenue.
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2014 (5) TMI 734
Transfer pricing adjustment – Determination of ALP – Technical knowledge supplied to AE - Held that:- The assessee had filed in the course of the TPO assessment as well as before the DRP detailed submissions, including Agreement between AE and assessee, justifying why the technical knowhow supplied by its AE was crucial to the running of its business over the sustained period of the agreement – Following CIT v. EKL Appliances Ltd. [2012 (4) TMI 346 - DELHI HIGH COURT] - so long as the expenditure or payment by assessee has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning – they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises - the guidelines discourage re-structuring of legitimate business transactions - The reason for characterization of re-structuring as an arbitrary exercise is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured. It is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity - It is also not necessary to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years - The only condition is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business and nothing more - the assessee company maintained the necessary documentation of the international transactions as per Section 92D read with Rule 10D - The assessee company had also submitted details of the technology knowhow it obtained from its AE and the details of the Royalty payments made - The TPO has not only refuted the justification of Royalty payments but also pointed out that there was "reverse flow" by analyzing the deputation of personnel by the Indian company for various projects - This has been countered by the assessee specifically - The TPO has not countered that argument effectively nor is there anything on record to indicate otherwise. Once TNMM has been applied to the assessee company's transaction, it covers under its ambit the Royalty transactions in question too and hence separate analysis and consequent deletion of the Royalty payments by the TPO in the instant case seems erroneous – Relying upon M/s. Cadbury India Ltd Versus Addl Commissioner of Income Tax [2014 (4) TMI 926 - ITAT MUMBAI] the use of TNMM for Royalty is upheld – thus, the addition made by the TPO and upheld by the DRP is unsustainable and is to be set aside – Decided against Revenue.
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2014 (5) TMI 733
Cancellation of registration u/s 12A of the Act – Scope of the term charitable purpose u/s 2(15) of the Act - Advancement of any other objects of general public utility – Held that:- Following Ghatkopar Jolly Gymkhana v. DIT (E) [ 2014 (4) TMI 201 - ITAT MUMBAI] - the action of the CIT(A) relying upon the newly inserted proviso from 01.04.2009 in cancelling the registration of the trust is not correct or justified - The only effect will be that the Assessee will not be entitled for exemption or tax benefits which otherwise would have been available to it being registered as charitable institution, for the relevant year during which its income has crossed the limit of Rs.10.00 lacs - merely because the income of the assessee has crossed prescribed limit of Rs. 10 lakhs, that itself cannot be ground for cancellation of its registration invoking section 12AA(3) of the Act - for the previous year, during which the gross receipt income crosses limit of Rs.10.00 lacs, the trust will not get exemption or benefit of its being charitable in nature despite its carrying out charitable activities but, it will get benefit if it is registered as charitable institution and income from business activities, as mentioned in first proviso to section 2(15), does not cross limit of Rs.10.00 lacs – thus, the order of the DIT(E) is set aside and the registration to the assessee council granted u/s 12A of the Act is restored – Decided in favour of Assessee.
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2014 (5) TMI 732
Disallowance of loss on foreign currency fluctuation - Assessee contended that the revenue disregarded the fact that the assessee needs to enter into forward contract in order to Hedge risk as the amount involved is high and significant – Held that:- Following London Star Diamond Company (I) (P.) Ltd Versus Deputy Commissioner of Income-tax [2013 (11) TMI 424 - ITAT MUMBAI] - the forward contracts fall in the definition of "commodities" - Such forward contracts which are integral part or incidental to the core business of export of diamonds or the outstanding receivables of export proceeds constitute hedging transactions and not the speculative contracts - If the definition of "commodity derivative" as was provided in the Finance Bill 2013 is correlated with as provided u/s 43 of the I.T. Act, it is wide enough not only to include forward contracts in derivatives relating to goods, services and rights such as warehousing and freight but also with reference to weather and similar events and activities having a bearing on the commodity sector. Foreign exchange forward contracts' entered into for the purpose of hedging the loss in import-export transactions, have been duly recognized and allowed by the Reserve Bank of India - in case of import/export business, where the transactions are demonetarized in the foreign currencies and for the purpose of hedging of the anticipated loss resulting from such import-export business and not otherwise, if the assessee enters into a forward contract in foreign exchange, then such forward contracts are to be treated as integral part or incidental to the business of export/import and cannot be said to be the speculative contracts attracting the provisions of section 43(5) of the Act - The loss from hedging transactions would be treated as business loss eligible to be set off against the profits and gains of business and profession. The foreign exchange loss incurred by the assessee on account of entering into forward contracts with the banks for the purpose of hedging the loss in connection with his import/export business of diamonds cannot be held to be a speculative loss rather a business loss which can be set off against profit and gains of business subject to the condition that the assessee will have to satisfactorily prove that the maturity of the hedge did not exceed the maturity of the underlying transaction and further to explain the requirement/necessity for premature cancellation of such forward contracts or that such cancellations or re-bookings were done to minimize the anticipated future losses from transactions – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assesee.
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2014 (5) TMI 731
Denial of approval as society u/s 80G(5)(iv) of the Act - Object of the society is for benefit of a particular religious community only – Held that:- The objects of the Society is only to uplift the Sikh Community not any other caste, religion or creed - The institution has been established only to impart education in arts, science, sports and vocations and for all these peoples only - as regards to the member of the General Council of the applicant society only Sikh can become a member of the general council not any other person is eligible to become a member of the society - Keeping in view the Constitution of the applicant as well as the relevant provision of law i.e. Section 80G(5)(iii), it has been held that it is matter of record that the applicant society is only made to uplift one community i.e. Sikh Community and imparting various types of education to them which includes social, cultural, physical, religious and moral uplift as well as in the sphere of arts, science, sports and vocation - only Sikh can become a member of the General Community of the appellant/applicant society who is controlling the entire administration of the institutions run by the society, which is clearly contrary to the provisions of Section 80G(5)(iii) of the Act – the applicant society does not fulfill the conditions prescribed u/s 80G(5)(iii) of the Act – thus, the applicant society is not entitled for the approval u/s 80G(5)(iv) of the Act. The assessee has not filed any documentary evidence, establishing that the applicant society is not only working for uplift of the Sikhs but for general community also - There is no piece of evidence on record establishing that a non-Sikh can become a member of General Council of the appellant/applicant society - the documentary evidence filed by the assessee is not helpful - It is very much clear from the name of the applicant society i.e. Sangat Sahib Bhai Pheru Sikh Educational Society, Faridkot as well as the constitution along with aims and objects of the appellant/applicant society that the society is not doing any charitable work for uplift of general community and using its funds only for uplift of Sikh community by providing education in various fields, which is contrary to the provision of Section 80G(5)(iii) - CIT, Bathinda, has rightly rejected the application – Decided against Assessee.
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2014 (5) TMI 730
Denial of deduction u/s 80IB(11A) of the Act – Business of taking godowns on lease and letting them - Held that:- There was no merit in the reasons of the lower authorities for making the disallowance - the assessee-corporation owns premises accommodating godowns at different places all over the State - each unit is an undertaking because food-grains are stored and handled and transported thereto and therefrom - there is no restriction in section 80-IB that an existing business unit cannot set up new undertakings to carry on the integrated business of handling, storage and transportation of food grains - The godowns where this business is to be carried on need not be owned by the assessee - When the assessee-corporation has set up these godowns in as many as in 73 towns and at different places in those towns, it is entitled for relief u/s 80IB(11A) of the Act in respect of each such new undertaking set up by it. The assessee had collected rentals for storing food grains and had engaged outsiders to transport the food grains - the assessee had been carrying on similar business would not disentitle the assessee from claiming relief u/s 80IB(11A) - deduction under Chap VIA, in respect of new undertakings set up by the assessee by way of expansion of the existing undertakings – Relying upon as held by the Apex Court in the cases of Textile Machinery Corporation Ltd v CIT [1977 (1) TMI 3 - SUPREME Court] – thus, the assessee is entitled to deduction u/s 80IB(11A), in respect of income derived from the new undertakings, warehouses, set up and operated from 1.4.2001 for storage, handling and transportation of food grains – the order of the CIT(A) is set aside and the matter is remitted back to the AO for verifying the claim of the assessee - Decided in favour of Assessee. Disallowance of deduction u/s 37 of the Act - Contribution made to IAS Officers’ Association Building – Held that:- The assessee itself has added the amount of Rs.2 lakhs in the computation of income, and a separate addition hence is not called for - It is to verify this contention of the assessee and to delete the addition made by the Assessing Officer, if the same is found to be correct that the CIT(A) set aside the matter to the file of the Assessing Officer with specific directions in that behalf – there was no infirmity in the action of the CIT(A) in this behalf – Decided against Assessee.
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2014 (5) TMI 729
Book adjustments u/s 115JB - Insurance company - Minimum alternate tax (MAT) - Reduction/exemption from gains on sale of investment – Held that:- Following ICICI LOMBARD GENERAL INSURANCE CO. LTD. Versus ASSTT COMMISSIONER OF INCOME TAX, RANGE-10(1), MUMBAI [2012 (11) TMI 587 - ITAT MUMBAI] - the amended provisions of Rule 5 of First Schedule makes it clear that the profits and gains shall be taken to be the profit before the tax and appropriately disclosed in the P&L Account prepared in accordance with the Insurance Act, 1938 or the Rule made thereunder or the provisions of IRDA Act - once the profit on sale of investment is required to be included in the P& L account in accordance with the provisions of Insurance Act, then as per the Rule 5 of First Schedule of the Act, no adjustment is required to be made on account of the amount of profits on sale of investment already included in the P&L Account - the Tribunal has been taking a consistent view on the issue in a series of decisions, thus, to maintain the rule of consistency and uniformity on this aspect, the matter has been decided in favour of Assessee. Addition on account of premium deficiency – Computation of book profits u/s 115JB of the Act – Held that:- Following ICICI LOMBARD GENERAL INSURANCE CO. LTD. Versus ASSTT COMMISSIONER OF INCOME TAX, RANGE-10(1), MUMBAI [2012 (11) TMI 587 - ITAT MUMBAI] - even if an Insurance Company does not disclose any matter in the Balance Sheet and P&L account because the same is not required to be disclosed by the Insurance Act shall not be treated non-disclosure of a true and fair view of the state of affairs of the company as the condition has been relaxed by sub sec 5 of sec 211 of the Companies Act - when the insurance companies, banking companies and electricity generation and distributions companies are treated in the same class as per the provisions of sec. 211 of the Companies Act in preparing their final accounts, then these companies cannot be treated differently for the purpose of sec. 115JB and accordingly, the provisions of sec. 115JB are not applicable in the case of the assessee – Decided in favour of Assessee.
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Customs
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2014 (5) TMI 754
Classification of goods - Classification of activated Bentonite clay imported from abroad - whether under CTH 2508 or under CTH 3802 of the Customs Tariff - Duty demand - Bar of limitation - Held that:- A careful reading of Note 1 to Chapter 25 read with HSN Explanatory Notes to CTH 25.08 and 38.02, make it abundantly clear that activated Bentonite merits classification under Heading 38.02. As per technical literature, activation of Bentonite by acid or alkali results in changes in the molecular structure of the product. C.B.E. & C. vide Circular 32/2002, dated 10-6-2002, after examining the issue in depth, has clarified that activated Bentonite merits classification under CTH 3802. Therefore, the correct classification of activated Bentonite is CTH 38.02 and not CTH 25.08. - Decided against the assessee. Mistake in the tariff classification entries as introduced w.e.f. 1-2-2003 - Held that:- for the period from 1-2-2003 to 31-12-2006, activated Bentonite has to be classified under CTH 2508 10 90 (because of its specific inclusion in the tariff description). However, for the period prior to 1-2-2003 and from 1-1-2007 onwards, when there is no specific inclusion, in view of Note 1 to Chapter 25 which excludes products whose structure has undergone a change, the said product merits classification under CTH 3802 90 19 and we hold accordingly. Extended period of limitation - Section 28(1)(a) stipulates that whenever there is a short levy or non-levy or erroneous refund of duty, then the proper officer shall, within one year from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice. Thus it is not date of issue of show cause notice but service of notice that is relevant for computing the time period. Further, as per the definition of relevant date, for reckoning the time period, it is not the date of filing of the bill of entry, but the date of payment of duty that would be relevant. If the show cause notice has been served on the party within a period of six months/one year, as the case may be, from the date of payment of duty, the demands would be valid and sustainable. Decided partly in favour of assessee.
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2014 (5) TMI 753
Valuation of goods - Under valuation of goods - related parties - supply of spares - Penalty - Held that:- there is sufficient evidence to show that during the period of dispute, refurbishable spares were not paid for by Sun US/SGP and apparently appellants have made efforts subsequently to make suitable adjustments. We have already taken note of the fact that even to PWC for conducting study of transfer pricing issue, appellants have not disclosed these facts and even the fact that defective parts were paid for and such payment was equal to the cost of new parts supplied by Sun US/SGP was also not brought to the notice of PWC. Therefore we really do not know the implications on this account on the PWC report. The analysis, evidences, annexures, documents and statements of officers of the company and information collected from bankers, courier services would clearly show that appellants have not been able to prove their claim of receiving payments in respect of refurbishable spares. Therefore, the claim of the Revenue that the price charged to SI by Sun SGP cannot be accepted since there were other circumstances besides the relationship between the entities has considerable force. Appellant cannot be considered as different from other buyers of equipments since the parts are supplied against replacement and old parts are sent back and appellant is reimbursed on the basis of cost plus 10% for the services they render. In such a situation, the discount given to appellant has no meaning since appellant in any case, do not incur any extra cost and AMC / warranty charges do take into account the cost of spare parts that they may have to be replaced during the course of rendering such services. Therefore even if the refurbishable spare parts were being paid for to Sun US at the price of new parts, such a transaction would definitely affect the transaction value between the two entities. whatever angle we look at the transactions we find that the value adopted cannot be considered transaction value in terms of section 14 of Customs Act, 1962. Therefore US list price minus discount cannot be a basis for charging customs duty. - Decided against the assessee. Regarding flow-back is underbilled amount of spares used for warranty - Held that:- The mail is an evidence that the cost plus 10% billing for the services provided by SI to SunUS and SunSGP has a bearing on the supply of spares by SunSGP and SunUS to SI at list price less discount (68% or 70%). Hence, under billing in respect of services provided by SI to SunSGP and SunUS was to compensate the underbilling of spares systematically. - submissions on behalf of Revenue that Asia Logistic Centre (ALC) charges charges related to the spares transaction has not been shown to be wrong. - Decided against the assessee. As regards provisional charges and marketing & R&D charges, SI admitted the underbilling but claimed it had nothing to do with the import of spares. This becomes evident from the submissions made by the appellants in the paper books wherein they have given rebuttals point by point to the allegations in the show-cause notice. As regards underbilled professional charges, the appellants stated in any event the amounts have already been charged by SI on 26/05/2009 and paid for by SunUS. It has to be noted that this is much after the issue of show-cause notice and conducting of investigation. Therefore this allegation has to be held as proved. Other than stating that this had nothing to do with the import of spares, there is no other explanation. There is no explanation how this conclusion has been reached by them. - Decided against the assessee. Under these circumstances, there is absolutely no alternative but to levy customs duty on the US list price as arrived at by the Revenue. There are several instances where no discount has been allowed or price has been in excess from 1% to 128% of the US list price (as arrived at). Even probably the biggest customer viz. Infosys also was charged 128% over the list price in respect of one item. The list price is the only price which has some relationship and some value as a reflection of independent transactions. - US list price as worked out by the Revenue should be the basis and duty demand confirmed on that basis and assessments should be finalized on that basis. - Decided against the assessee. Regarding penalty on DHL Express India ltd - Held that:- Appellant was not at all involved in undervaluation. M/s. DHL was providing all logistic support including clearances of imported goods from Customs to SI. There were raising freight invoices. They were aware that the consignments were received on freight to collect basis. They have a unique system of identifying ‘freight to collect’ consignments imported based on account number. Non-declaration of freight element and terms of import resulted in non-payment of duty on freight charges. DHL did not inform CHA to include the freight charges in the assessable value. Even though the learned counsel argued vehemently, and submitted that they had not filed any documents and therefore no penalty can be imposed on them, we find that facts go against DHL totally. DHL is in the business of logistics and for a professional organization which is engaged in the same business, it cannot be said that they were not aware of the legal position. However, Penalty reduced from 20 lacs to 10 lacs.
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2014 (5) TMI 752
Undervaluation of goods - Mis declaration of quantity of goods - Held that:- no bill of entry has been filed by any of the appellants before us and in the IGM no reference of any of the appellants have been made but charges made against the appellant are that they undervalued the goods and misdeclared the quantity of goods. Unless and until bill of entry is filed and quantity and value is declared, allegation of misdeclaration of value and quantity is not sustainable. But in the impugned order demands have been confirmed against the appellant namely Manisha Karia and Vishal Dedhia that they have misdeclared the value and quantity of goods. We find that the observation of the adjudicating authority is without application of mind - As there is no declaration in the IGM any of the appellant’s name; further no bill of entry or bills of entry has been filed by any of the appellants, therefore, the allegation of undervaluation or misdeclaration of quantity is not sustainable - Decided in favour of assessee.
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2014 (5) TMI 751
Exemption under Notification No. 17/2001-Cus. - delay in submission of certificate - Held that:- Notification stipulates that the end-use certificate shall be furnished within a period of three months or such extended period as the said Deputy Commissioner/Assistant Commissioner may allow, produce the extract of the aforesaid account, duly certified by the Deputy Commissioner/Assistant Commissioner to extend the period of submission of certificate. In the present case, there is no dispute that the appellant had used the imported material for the intended purpose and they also obtained the certificate, though belatedly, from the jurisdictional excise authorities and the same has been submitted to the Customs authorities. Since the substantive condition of exemption has been complied with by the appellant, the benefit of exemption should not be denied as held by the Apex Court in the case of Formica India Division [1995 (3) TMI 98 - SUPREME COURT OF INDIA]. In the present case, we find that the substantive condition of exemption has been satisfied. Therefore, we hold that the appellant was rightly entitled for the benefit of exemption - Decided in favour of assessee.
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Corporate Laws
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2014 (5) TMI 750
Procedure to try complaint under Section 138 of the Negotiable Instruments Act, 1881 - Petitioner banks being custodian of public funds find it difficult to expeditiously recover huge amount of public fund which are blocked in cases pending under Section 138 - Scope of Section 145 - Held that:- The scope of Section 145 came up for consideration before this Court in Mandvi Cooperative Bank Limited v. Nimesh B. Thakore [2010 (1) TMI 570 - SUPREME COURT OF INDIA], and the same was explained in that judgment stating that the legislature provided for the complainant to give his evidence on affidavit, but did not provide the same for the accused. The Court held that even though the legislature in their wisdom did not deem it proper to incorporate a word "accused" with the word "complainant" in Section 145(1), it does not mean that the Magistrate could not allow the complainant to give his evidence on affidavit, unless there was just and reasonable ground to refuse such permission. Section 145(1) gives complete freedom to the complainant either to give his evidence by way of affidavit or by way of oral evidence. The Court has to accept the same even if it is given by way of an affidavit. Second part of Section 145(1) provides that the complainant's statement on affidavit may, subject to all just exceptions, be read in evidence in any inquiry, trial or other proceedings. Section 145 is a rule of procedure which lays down the manner in which the evidence of the complainant may be recorded and once the Court issues summons and the presence of the accused is secured, an option be given to the accused whether, at that stage, he would be willing to pay the amount due along with reasonable interest and if the accused is not willing to pay, Court may fix up the case at an early date and ensure day-to-day trial. Few High Courts of the country have laid down certain procedures for speedy disposal of cases under Section 138 of the Negotiable Instruments Act - It is directed to all Criminal Courts in the country dealing with Section 138 cases to follow the above-mentioned procedures for speedy and expeditious disposal of cases falling under Section 138 of the Negotiable Instruments Act. - Decided in favour of assessee.
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2014 (5) TMI 749
Fraudulent reduction in shares held by the respondent - Forgery of documents - Respondent contends that she held 49% shares in the Company which had been further reduced to 36% and that the affairs of the Company were being managed in a manner oppressive to the minority shareholders - Alternative modes of resolution - Mediation - Held that:- it is not necessary to either enforce orders dated 31.1.2008 passed by the CLB or orders dated 11.4.2008 passed by the High Court. Fact remains that there has been a complete deadlock, as far as affairs of the Company are concerned. The project has not taken off. It is almost dead at present. Unless the parties re-concile, there is no chance for a joint venture i.e. to develop the resort, as per the MOU dated 21.12.2005. It is only after the decision of CLB, whereby the respective rights of the parties are crystallised, it would be possible to know about the future of this project. Even the Company in question is also defunct at present as it has no other business activity or venture. In a situation like this, we are of the opinion that more appropriate orders would be to direct the parties to maintain status quo in the meantime, during the pendency of the aforesaid company petition before the CLB. However, we make it clear that if any exigency arises necessitating some interim orders, it would be open to the parties to approach the CLB for appropriate directions - Decided against appellant.
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Service Tax
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2014 (5) TMI 766
Reversal of CENVAT Credit - Suppression of facts - Malafide intention - Availment of ineligible CENVAT Credit - Held that:- it is a fact of record that the appellant was availing input service credit which was not entitled during the period April 2007 to October 2009 but after October 2009, the appellant stopped availing input service credit as per Notification no. 1/06. It means that the fact of wrongful availment of Cenvat credit came in the knowledge of the appellant in October 2009 and thereafter they have stopped taking the credit. If appellant was not having any malafide intention, it was a duty of the appellant that these facts would have brought in the knowledge of the department and would have been paid the service tax attributable to inadmissible input service credit voluntarily by the appellant. As this act has not been done by the appellant, therefore it amounts that appellant knowingly availed wrongful input service credit, did not reverse the credit, this act of the appellant would amount to malafide intention to avail inadmissible credit - Decided against assessee.
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2014 (5) TMI 765
CENVAT Credit - Debit notes - whether the appellant could avail the Cenvat credit of service tax paid on the Business Auxiliary Service availed by them on the basis of debit notes issued by their dealers - Held that:- when the debit note contains all the particulars which are required to be mentioned in an invoice, just because the document is titled ‘debit note’ instead of ‘invoice’, the Cenvat credit cannot be denied. Rule 4A (1) of Service Tax Rules mentions the particulars which are required to be mentioned in an invoice. In our view, if the debit note issued by a service provider contains all the information, which is required to be mentioned in an invoice in terms of Rule 4A (1) of Service tax Rules, 1994, the documents has to be treated as invoice issued under Rule 4 A (1) of Service Tax Rules, irrespective of its title and service tax credit has to be allowed on the basis of such document. However, in this case, the Commissioner has not examined this aspect and has simply disallowed the credit on the basis that the documents on the basis of which the Cenvat credit has been availed were titled ‘debit notes’ and not invoices. The impugned order, therefore, is not sustainable and the same has to be set aside and the matter has to be remanded for denovo adjudication after examining as to whether the debit notes contained all the information which is required to be mentioned in an invoice in terms of Rule 4A of the Service Tax Rules, 1994 and if this is so, the Cenvat credit has to be allowed. - Decided in favour of assesee.
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2014 (5) TMI 764
Demand of service tax - Double taxation - sub-contractor - pre-Cenvat credit Rule 2004 era - Held that:- as per various pronouncements of the Tribunal, if the service tax liability stand discharged on the full and complete value, the sub-contractor cannot be taxed again in respect of same services, on that part value in the services provided by them. Admittedly it would amount to double taxation in respect of same services, Tribunal in the case of M/s. Anand Sales Corpn and others vs CCE Kanpur [2014 (2) TMI 621 - CESTAT NEW DELHI] has done a detailed discussion in the manner and has held that inasmuch as during the relevant period, the practice of payment of service tax on the full value was the general practice being adopted, the separate confirmation of service tax against the sub-contractor would not be justified, though the Cenvat credit Rules, requires separate payment of service tax on separate activities, which service tax would be available as credit to the main contractor. When the principle contractor has paid the service tax on the entire value, and keeping in view that exchequer cannot be enriched on account of double taxation and keeping in view that the Revenue has already earned its share of service tax whether coming from the pocket of main contractor or from the pocket of sub contractor and keeping in view the earlier Boards clarifications which were relevant during the period which stand relied upon the case of JAC Air services and keeping in view that concept of service tax are still not clear and keeping in view that there was a pattern in the industry for payment of service tax by the main contractor and keeping in view that entire situation is revenue neutral, I deem it fit to set aside the impugned order - Matter remanded back - Decided in favour of assessee.
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2014 (5) TMI 763
Waiver of pre-deposit of duty - CENVAT Credit - inputs - activity of construction of the plant - applicant relied upon the Board Circular dated 29-4-2011 wherein it has been clarified that credit in respect of services received before 1-4-2011 is available. - Held that:- Applicant vide a communication referred to above informed the Revenue regarding completion of the Unit and regarding clearance of clinker in the month of March 2011. Therefore in view of the Board Circular, the applicant has a strong prima facie case for complete waiver of pre-deposit of the dues. Accordingly, the pre-deposit of the dues is waived and recovery stayed till the disposal of the appeal. - Stay granted.
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2014 (5) TMI 762
Valuation of goods - outdoor catering services - whether cost of value of LPG cylinders supplied free by M/s. ITC would be taxable or not - Held that:- This value would not be included in the assessable value. The other aspect of the matter is that SCN was issued on 22-4-2009 and the Commissioner (Appeals) set aside penalty on the ground that there is no suppression of fact. After considering the facts and circumstances of the case, we find that pre-deposit of tax, interest and penalty should be waived. Accordingly, the pre-deposit of tax along with interest and penalty is waived and recovery thereof is stayed during pendency of the appeal. - Stay granted.
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Central Excise
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2014 (5) TMI 758
Confiscation of goods - Shortage in stock found - Commissioner reduced redemption fine - Held that:- Commissioner (Appeals), has granted relief to the respondents in respect of the goods found in the godown. Such relief stands granted by the appellate authority, after taking into consideration, the respondents plea that the goods found therein were earlier cleared on payment of duty under the cover of invoices as the same were rejected by their buyers, that were stored in the godown. He has rightly observed that the allegations of clandestine removal are required to be established by the Revenue and the negative onus cannot be placed upon the assessee. The Revenue has not made any investigations at the end of the buyers so as to find out the veracity of the truth in the contentions of the respondents. In the absence of any positive evidence to reflect upon the clandestinely cleared goods, the appellate authority has rightly concluded that the goods found in the godown cannot be confiscated and duty cannot be confirmed against the assessee - Decided against Revenue.
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2014 (5) TMI 757
Duty demand - Invocation of extended period of limitation - Held that:- From the facts available on record it is observed that both the show cause notice are issued invoking extended period and pertain to the period prior to visit of the Central Excise officers on 29.6.2000. It is not the case in the present proceedings that subsequent show cause notice is issued for the extended period after the visit of the Central Excise officers for the same facts - second demand show cause notice, also for the period prior to the date of the visit of the officers, cannot be considered as time barred when the same is issued within a period of five years from the ‘relevant date’ as per the provisions of Section 11A of the Central Excise Act, 1944 - Following decision of Hi-Tech Needles (P) Limited vs. CCE Allahabad [2012 (10) TMI 384 - CESTAT, NEW DELHI] - Decided in favour of Revenue.
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2014 (5) TMI 756
Waiver of pre deposit - Duty demand - Clandestine removal of goods - Held that:- So far as clandestine removal of 185.110 MT of MS Wire short found is concerned, it is clearly brought out by the appellants that majority of these goods were sent to the job work which on verification by the field formations was found to be true. Appellant has therefore, made out a prima facie case for waiver of this demand. Regarding demand of cenvat credit of Rs. 10,97,563/- on 50.402 MT of imported Zinc Ingots is concerned, Revenue has relied upon some of the statements recorded from the appellants employees whose cross-examination was not provided. This fact is countered by the statement of the appellant that the inputs were received and utilised in their factory for manufacture of dutiable goods and also that the statement of transporters were not recorded. There is also no allegation that Zinc Ingots imported were found diverted to some other place or that any representative of such diverted goods were seized by the investigation. It is also difficult to appreciate as to why a manufacturer will dispose off the imported Zinc Ingots at the place of import and acquire again the same quantity of Zinc from elsewhere for use in the manufacturing activity - Prima facie, appellant has not made out a case of complete waiver of demands confirmed against them are required to be put to some conditions because the submissions made by the main appellant are required to be gone into details which can be done only at the time of final hearing of the case - Conditional stay granted.
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2014 (5) TMI 755
Restoration of appeal - Appeal dismissed for non compliance order u/s 35F - Held that:- Commissioner (Appeals) has recorded that on the stay application it is not deemed necessary to grant hearing to the appellant. As the stay order passed by the learned Commissioner (Appeals) is an ex-parte order and the same is not sustainable. Consequently, the order of dismissal of appeals is also not sustainable. In this term, the impugned order is set aside and the matter is remanded back to the Commissioner (Appeals) to first decide the stay application on merit after giving a reasonable opportunity of hearing to the appellants to defend themselves - Decided in favour of assessee.
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CST, VAT & Sales Tax
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2014 (5) TMI 761
Exemption of Tax - Inter-state sale – Whether delivery of raw rubber taken from State Trading Corporation, Chennai to the factories outside the State is inter-state sale – Held that:- Assessee's factories are located outside the State one at Andhra Pradesh and other at Pondicherry - The assessee gave the declaration that the rubber to be allotted was meant for use in the factory premises at the mentioned place for manufacturing and processing of end product mentioned Sl.No.4, the assessee also gave an undertaking that they shall not use the goods anywhere else nor would be sold any portion of allotment - In the allocation order, the names of the assessee's factories situated in Andhra Pradesh and Pondicherry were mentioned - The proforma invoice and delivery order were in the name of respective factories - In the background of these facts, it is held that the assessee is entitled to succeed. Relying upon SAHNEY STEEL v. PRESS WORKS LTD v. COMML. TAX OFFICER [1985 (9) TMI 313 - SUPREME COURT OF INDIA] - Even if the customer placed an order with the branch office when the branch office had communicated the terms and specifications of the order to registered office and the branch office itself was concerned with dispatching, billing and receiving of the sale price, the order placed by the customer was an order placed with the head office of the company, and for the purpose of fulfilling that order, the manufactured goods commenced their journey from the registered office in the State of Andhra Pradesh to the branch outside the State for delivery of the goods to the customer therein - When the assessee had placed orders on behalf of its branches/ factories, situated outside the State, there could be no doubt as regards the character of the sale as nothing but an interstate sale - Similarly regarding the purchase of tyres from State Trading Corporation on allotment of rubber, yet, the decision rested on the facts found - Therefore, the decision is distinguishable on facts – Relying upon CCE v. ALNOORI TOBACCO PRODUCTS [2004 (7) TMI 91 - SUPREME COURT OF INDIA] - Observations in judgments must be read in the context of the facts of the case – Accordingly, Revision dismissed, thereby confirming the order of the Tribunal – Decided against Revenue.
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2014 (5) TMI 760
Claim of Deduction - Whether the tax element charged is part of the consideration or not - Works contract – Contract of Retreading of tyres – Agreement to consolidate price inclusive of tax - Explanation (1-A) to Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959 – Held that:- When the parties to the contract have agreed on a consolidated price inclusive of tax, it is clear that irrespective of how they make up the bill or the accounts, the entire consideration will be the turnover, and in which event, the question of application of Explanation (1-A) to Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959, does not arise - This Court, in the unreported decision in W.P.No.37025 of 2002, by order dated 1.4.2004, clearly held that how an assessee makes up its bill or accounts, would not be of any assistance to the assessee for the purpose of claiming any deduction by the application of Explanation (1-A) to Section 2(r) of the TNGST Act - This Court pointed out that the mere fact that the assessee had given the break-up figure on the back side of the bill for administrative convenience, by itself, would not be a ground for granting the relief. Works contract turnover, hence deemed sale, and the divisibility of the consideration is worked out statutorily as under Section 3-B of the TNGST Act, 1959 - Break-up of the consideration and the tax thereon is shown under various heads in the books of accounts of the assessee - That apart, there is hardly any material to find, on which portion of the consideration, the assessee really collected the tax payable under the Act – It is not agreed that the mere fact of distribution under different heads in the amounts would qualify for deduction under the Act, or for that matter, no tax would be charged – Therefore, no hesitation in confirming the order of the Tribunal - The Tax case Appeals stand dismissed – Decided against assessee.
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2014 (5) TMI 759
Rate of Tax - Rubber products – Classification – Entry 55 Schedule 1 – Held that:- It is seen from the I Schedule that there is a specific entry both before and after the amendment to the Schedule as regards rubber belting and automobiles, tractors and two wheelers with parts and accessories - While there is specific entry for automobiles, two wheelers and tractors inclusive of parts and accessories, Entry 50 is a general entry dealing with rubber products - The enumeration shows the products enumerated there are in the nature of compound rubber, unvulcanised, in primary forms or in plates, sheets or strips, other forms of rubber, rubber thread and cord - Sub clause (vi) deals with conveyor, transmission or elevator belts or belting of rubber whether combined with any textile material or otherwise - Going by the enumeration therein particularly as regards belting referable to conveyor and transmission belting, it is clear that goods referred under Entry 50 has no relevance to the belts used in automobile, two wheelers or tractors - The enumeration in Entry 50 thus takes its colour from the reference as regards its particular usage. When there is a specific entry with parts and accessories, the reference to the particular goods thus excludes the applicability of general entry on rubber products - Thus, going by the nature of enumeration contained in Entry 50 of I Schedule, No justification to accept the case of the Revenue that the product dealt with by the assessee would fall as a rubber product - The assessee is a dealer in automobile parts and not a general dealer in rubber products, and that the belts used for tractors and cars are not conveyor belts, thus, the plea of the Revenue is rejected - Revisions are dismissed – Decided against Revenue.
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