Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
May 29, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Exemption u/s 10(23C)(vi) - Any expenditure incurred by an assessee for computerisation and developing an IT enabled system for carrying on its activities would be application of its resources wholly and exclusively for its purposes - HC
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Disallowance of referral fees paid - The payment was at arm’s length, AO cannot reassess that issue or draw adverse conclusions from the percentage value of the referral fees - AO can in his assessment u/s 37 decide whether work or services were actually rendered as claimed by the assessee - HC
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Jurisdiction of the ITO u/s 281 - in order to declare a transfer as fraudulent u/s 281, an appropriate proceeding in accordance with law was required to be taken u/s 53 of the Transfer of Property Act - HC
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If any income from an assessment by a higher forum on the ground that it is not the income of that year, the Income-tax Officer has jurisdiction to initiate proceedings u/s 147 to assess it as the income of another year without any limitation applying to the issue of the notice u/s 148 or to the completion of the assessment or reassessment - HC
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Diversion of income by overriding title - interest earned on grants – The directives created an overriding title in favour of the State Government – thus, the interest cannot be assessed as the assessee's income - AT
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Denial of exemption u/s 11 - the income which is exempt u/s 10 cannot be brought to tax by virtue of sections 11 and 13 of the Act because no such pre condition is provided either u/s 10 or 11 to 13 of Income-tax Act - AT
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Rectification of mistake apparent on record u/s 254(2) - The assessee through this application has attempted to dissect the order of the Tribunal into pieces then to vent out his dissatisfaction regarding the finding arrived at by the Tribunal on the factual matrix - application dismissed - AT
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Exemption u/s 10B - abnormal increase in profit - AO was not justified in invoking the provisions of section 80IA(10) of the Act to restrict the deduction claimed by the assessee u/s 10B - AT
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Deletion of LTCG as non-genuine - transactions in shares - Deletion of undisclosed commission paid for arranging accommodation entries - assessee proves that transactions were genuine - no addition - AT
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Transfer pricing adjustment – Guarantee charges for guarantee to AE – no upward adjustment in the ALP in relation to charging of guarantee commission over and above 0.20% can be made - AT
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Computation of capital gains – nature of land at the time of valuation i.e. as on 1-4-2008 - conversion of agricultural land into non-agricultural land in the year 2005 - AO has rightly treated this land as agricultural land as on 01- 04-1981 - AT
Customs
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Classification of the gold and silver medals imported - Once the classification under Heading 9705 is overruled classification under Chapter 71 follows as a corollary of the HSN notes under heading 97.05 which itself suggests classification under Chapter 71 without specifying the heading - AT
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Benefit of Notification No. 21/2002-Cus. - Since, the appellant has not been named as sub-contractor in the contract awarded by NHAI, the appellant does not satisfy the condition of the eligibility - AT
Service Tax
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Valuation of services - clearing and forwarding agent service - inclusion of demurrage/ wharfage and expenses for local transport - being reimbursement of expenses not to be included - AT
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Tour Operator Service - operating contract carriage buses from Hyderabad to Shridi - demand confirmed - AT
Central Excise
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CENVAT Credit - capital goods - movement (transport) of Hydrogen Gas Cylinder outside factory premises for refilling etc. - credit cannot be denied on temporary taking out the cylinders - AT
Case Laws:
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Income Tax
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2014 (5) TMI 898
Refusal to grant exemption u/s 10(23C)(vi) of the Act - Whether the generation of surplus by the petitioner would indicate that the assessee was also existing for the purposes of profit and whether the lapses on the part of the petitioner in awarding the contract for IT services to RJBAPL would amount to not applying the funds exclusively for the object for which the petitioner was established as contemplated under third proviso to Section 10(23C) of the Act – Held that:- A plain reading of Clause (vi) of Section 10(23C) of the Act indicates that exemption under the clause would be available to any educational institution “existing solely for educational purposes and not for purposes of profit” - Following COUNCIL FOR THE INDIAN SCHOOL CERTIFICATE EXAMINATIONS Versus DIRECTOR GENERAL OF INCOME TAX [2012 (3) TMI 289 - DELHI HIGH COURT] – the assessee is an educational institution for the purposes of Section 10(23C) of the Act - the essential question that arises is whether the assessee exists solely for educational purposes or also for the purposes of profit - the aims and objects, as well as the activities undertaken by the assessee, fall within the definition of “charitable purposes” u/s 2(15) of the Act. Any expenditure incurred by an assessee for computerisation and developing an IT enabled system for carrying on its activities would be application of its resources wholly and exclusively for its purposes - The exemption u/s 10(23C) of the Act is available provided that the income of the assessee is applied “wholly and exclusively to the objects for which it is established” - the contract entered into with the RJB-APL was for furthering the object for which the petitioner was established - the assessee has along with RJB-APL amicably determined the amount payable for the work done and recovered the balance - The reasonableness of the amount spent and the quality of the decisions of the management are not the subject matter in respect of which the satisfaction of the Prescribed Authority is required. The expression used in Section 37 of the Act, “wholly or exclusively for the purposes of business and profession” is similar in its import as the expression “applied wholly and exclusively to the object for which it is established” as occurring in Section 10(23C)(vi) of the Act - the tests as laid down by various decisions for determining whether an amount is expended wholly and exclusively for the purposes of the business would apply equally in determining whether the income is applied by the assessee wholly and exclusively for its objects - Section 10(23)(vi) of the Act was analogous to Section 10(22) and to that extent the law laid down with respect to the eligibility condition u/s 10(22) of the Act would be equally applicable in cases u/s 10(23)(vi) - the assesse would be entitled to the approval u/s 10(23C)(vi) of the Act, if it was found that the funds of the assesse had not been utilized for its objects during the relevant year or had otherwise not complied with the provisos to the Section 10(23C) of the Act, the approval would be revoked at the end of the relevant year - the assessee is entitled to an exemption and it would also be available to the assessee for the subsequent year(s) - denial of exemption u/s 10(23C)(vi) of the Act to an Institution which exists solely for educational purposes and not for profit, on account of noncompliance with the third proviso would be limited to the relevant years during which the proviso has been violated. Even if it is assumed that payment to RJB-APL violated the third proviso for Section 10(23C) of the Act, the exemption u/s 10(23C)(vi) of the Act can be denied only for the for the year(s) during which payments had been made by the petitioner to RJBAPL - the assessee by its nature of activity is otherwise entitled to exemption u/s 10(23C)(vi) of the Act, it is liable to be granted by the respondent for future years subject to conditions as contained in the third proviso to Section 10(23C) of the Act – Decided in favour of Assessee.
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2014 (5) TMI 897
Disallowance of reimbursement of cost and expenses - Costs incurred towards services performed by AE Whether the Tribunal was correct in holding that benchmarking was not necessary in respect of the cost reimbursement reported by the assessee that was later subject to disallowance by the AO, since the TPO held that ALP in respect of this component was nil Held that:- The costs incurred by CWS and CWHK have not been disputed as they were actually incurred - the assessee did not attempt to benchmark this international transaction through any of the methods indicated under Rule 10C of the Income Tax Rules, 1961, to determine the ALP for these transactions - The existence of different tax rates and rules in different countries offers a potential incentive to multinational enterprises to manipulate their transfer prices to recognise lower profit in countries with higher tax rates and vice versa - This can reduce the aggregate tax payable by the multinational groups and increase the after tax returns available for distribution to shareholders. The authority of the TPO is to conduct a transfer pricing analysis to determine the ALP and not to determine whether there is a service or not from which the assessee benefits - That aspect of the exercise is left to the AO Relying upon Dresser-Rand India Pvt. Ltd. v. Additional Commissioner of Income Tax [2011 (9) TMI 261 - ITAT MUMBAI] - the assessee had market research facilities in India does not correspond to the performance of services abroad, especially in relation to client interaction services located outside India - albeit for ultimately sourcing them into the Indian market - the details of the specific activities for which cost was incurred by both CWS and CWHK and the attendant benefit to the assessee, have not been considered till date - This must be provided, in addition to a consideration of the ALP vis- -vis the total cost claimed by these AEs the matter is remitted back to the AO for an ALP assessment by the TPO, followed by the AO s assessment order. Disallowance of referral fees paid Held that:- The jurisdiction of the AO u/s 37 and the TPO, u/s 92CA are distinct - A referral by the AO to the TPO is only for the limited purpose of determining the ALP, based on a prima facie view that such a referral is necessary - the referral fees was paid according to international fee sharing rules and referral fees on Tenant Representation Transactions , details of which were provided by the assessee - the value of transaction or the percentage referral fees paid was confirmed by the TPO in his determination - The payment was at arm s length, the AO cannot reassess that issue or draw adverse conclusions from the percentage value of the referral fees - The AO can in his assessment u/s 37 decide whether work or services were actually rendered as claimed by the assessee - the AO found that there was no underlying referral that justified the payment of and thus the expenditure was not for a business purpose - This clearly lies within the AO s jurisdiction, a ruling to the contrary would mean that the expenditure cannot be tested as against the legal standard u/s 37 - The ITAT reasoned that this amounts to doing something indirectly that cannot be done directly - The finding of the ITAT on this count is set aside and the matter is remitted back to the AO for verification of facts and provision - Decided in favour of Revenue.
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2014 (5) TMI 896
Jurisdiction of the ITO u/s 281 of the Act – Sale deed declare as void – Held that:- Following Tax Recovery Officer Versus Gangadhar Vishwanath Ranade (deceased) [1998 (9) TMI 1 - SUPREME COURT] - Section 281 is only a declaratory provision and is not an adjudicatory provision entitling the authority to declare a document as a void document - section 281 merely declared what the law was as to that during the pendency of any proceeding under Income Tax Act in the event any assessee creates a charge or parts with the possession by way of sale, mortgage, exchange or by any other mode of transfer, such transfer would be void as against any claim in respect of any tax payable by the assessee - section 281 did not prescribe any adjudicatory machinery for deciding any question which may arise u/s 281 and that in order to declare a transfer as fraudulent u/s 281, an appropriate proceeding in accordance with law was required to be taken u/s 53 of the Transfer of Property Act - the ITO had exceeded its jurisdiction in adjudicating the matter u/s 281 of the Act – thus, the ITO had no jurisdiction to declare the sale deed as void – decided in favour of Assessee.
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2014 (5) TMI 895
Validity of assessment – Bar of section 150(2) of the Act - Whether reopening of the assessment for the AY 1996-97 by the notice dated 10th June, 2010 was barred by Subsection (2) of Section 150 of the Act – Held that:- Relying upon ITO Vs Eastern Coal Co. Ltd. [1973 (12) TMI 32 - CALCUTTA High Court] - a notice would become barred even u/s 150(1) if on the date of the appellate order the time for taking action for assessment for that year had become barred by the other provisions of the Act - The correct date in this connection would be the date when the order, which is the subject-matter of the appeal, was passed - If on that date the reassessment proceedings could have been validly taken then because of subsequent lapse of time the said reassessment proceedings do not become barred by time - the reassessment of the escaped income of the assessment year 1996-97, without any express ‘finding’ or ‘direction’ can be made under Explanation (2) to Section 153 (3) and in a case where no express finding or direction is there, like the one in the order dated 12th August, 2002, the reassessment could be made u/s 153 (3) (ii) – Decided in favour of revenue. The assessee is deemed to have accepted the finding or direction that “thus closing stock value of work in progress, will necessarily be enhanced in the preceding year i.e., AY 1996-97” - Relying upon Hope (India) Ltd. Vs. CIT reported in [1990 (11) TMI 12 - CALCUTTA High Court] - the Explanation to section 153 clearly provides that, in any case where income is excluded in appeal, reference or revision, or in any other legal proceeding, from the assessment for any year, an assessment of such income for another assessment year shall be deemed to be one made in consequence of, or to give effect to, any finding or direction by the authority hearing the case - This fiction of law removes the bar of limitation, irrespective of the question whether the authority has in fact given or can in law give a finding or direction that the income should be taxed in a specified assessment year other than the year for which the authority hears the case - if any income from an assessment by a higher forum on the ground that it is not the income of that year, the Income-tax Officer has jurisdiction to initiate proceedings u/s 147 to assess it as the income of another year without any limitation applying to the issue of the notice u/s 148 or to the completion of the assessment or reassessment – Decided in favour of Revenue.
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2014 (5) TMI 894
Deletion of disallowance u/s 40(1)(ia) of the Act – Held that:- In CIT vs. Crescent Export Syndicate [2013 (5) TMI 510 - CALCUTTA HIGH COURT] it has been held that the majority views expressed in the case of Merilyn Shipping and Transport were not acceptable - the second proviso to Section 40(a)(ia) is certainly intended to lessen the rigour of Section 40(a)(ia) in a case where the assessee is not deemed to be an assessee in default - There is no factual background on the basis of which it can be said that it was ever the contention of the assessee that he could not in the case be considered as an assessee in default - there was no occasion to consider as to whether the proviso is retrospective or can be held to be retrospective - The orders of the Tribunal and CIT(A), is patently contrary to the views expressed by the Court – Decided in favour of Revenue.
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2014 (5) TMI 893
Allowability of deduction of payment on retrenchment of workmen – revenue or capital expenditure - Held that:- There is as such dependable evidence to show that the business of the assessee was continuing – Following C.I.T. Vs. Assam Oil Co. Ltd. [1985 (2) TMI 29 - CALCUTTA High Court] - the assessee’s business in which the disputed payments were made did not come to a closure and that the assessee made such payments in order to effect economy and rationalisation of its personnel - No asset of enduring nature came into existence by reason of the payments though benefits accrued to the assessee thereunder which would continue not only for one year but in future years - But this benefit cannot be related to any asset as such - the interest paid by the assesee for the purpose of borrowing money for payment to the workers, would also amount to a business expenditure – Decided against Revenue.
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2014 (5) TMI 892
Disallowance of addition u/s 68 of the Act – Unexplained share capital invested in company – Held that:- Following CIT Vs. Lovely Exports Private Limited [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - if the department is having any doubt in the matter of investment of share application money or share capitals subscribed by various persons alleged to be bogus by the Department then it is for the Department to reopen their case and take action - once the assessee has discharged the burden of indicating as to the source from where, the share amount has been received - the appellate authority and the tribunal have not committed any error in rejecting the contention of the revenue – no substantial question of law arises for consideration – Decided against Revenue.
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2014 (5) TMI 891
Diversion of income by overriding title - interest earned on grants – Grants received and shown as payable to the Govt. of Gujarat – Held that:- Following Gujarat Municipal Finance Board Versus Deputy Commissioner Of Income-Tax (Assessment) [1996 (5) TMI 71 - GUJARAT High Court] - the interest was diverted at source by an overriding title in favour of the State Government - the interest was held not to amount as income of the Gujarat Municipal Finance Board and it was held that the interest was diverted to the State Government by an overriding title - The directive was reiterated in the certificate issued by the Principal Secretary - The directives created an overriding title in favour of the State Government so far as the interest element was concerned – thus, the interest cannot be assessed as the assessee's income - CIT(A) has rightly followed the order of the Tribunal – Decided against Revenue. Deletion of refund of grant to DRDA – Held that:- As decided in assessee’s own case for the previous year, it has been held that the assesee is entitled to succeed - once the amount is assessed as income, it cannot be added back to the assessee's income over again - the grants cannot be assessed as income as they were made for specific or assigned projects – relying upon C1T Vs. Ganga Charity Trust Fund [1985 (10) TMI 67 - GUJARAT High Court] - for the purpose of applying the income of the trust for charitable purposes, income derived from the trust property must be determined on commercial principles and in doing so, all outgoings including income-tax must be deducted and it is only from the surplus income in the hands of the trustees that the question of application of income can arise - the amount which was earlier assessed as income, refunded to DRDA during the year, constitutes a deduction while ascertaining the application of the income for the purpose of section 11(1)(a) of the Act – Decided against Revenue.
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2014 (5) TMI 890
Denial of exemption u/s 11 of the Act - application of income - denial of exemptions under Sections 10(34), 10(35) and 10(38) of the Act on the grounds that the assessee is a Trust and its income is to be computed only under the provisions of Sections 11 to 13. – Applicability of section 13(1) (d) and 13(2)(h) of the Act – AO found that the sale proceeds of shares of TCS has been reinvested in the Tata Sons Ltd which is not public sector company and, therefore, the investment of accumulated fund is not in conformity of section 11(5) - According to AO investment not held as Corpus fund. Held that:- Relying upon K.P. Varghese. v. ITO [1981 (9) TMI 1 - SUPREME Court] - the trust would not lose exemption even 85% of the income applied or deemed applied during the year if the whole or part of such income is accumulated or set apart for application of such purpose in India by giving notice in writing to the AO and the money so accumulated or set apart is invested or deposited in the form or mode specified in sub section (5) of section 11 - For the purpose of application of income in terms of sections 11 (1) and (2), the entire income of the trust has to be considered including the dividend and long term capital gain claimed as exempt u/s 10 of the act - the assessee has applied ₹ 164.93 crore during the year and nothing has been brought to show that the shortfall of more than 446 crore has been applied in the immediate following year - apparently the assessee trust has not applied the shortfall of more than 446 crore in the immediate next year in terms of the Explanation to section 11(1) of the Act - the assessee has already applied the entire balance amount in the shares of Tata Sons Ltd. – thus, the question of application of shortfall in the immediate next year does not arise. The assessee held the bonus shares of TCS for the duration which is within the time limit prescribed under clause (iia) of the proviso to section 13(1)(d) the assessee converted the assets being bonus shares of TCS into the preferential share of Tata sons Ltd. which is not a conversion into the asset/investment permissible u/s 11(5) of the Act - clause (iia) of proviso to section 13(1)(d) would not rescue the assessee from the mischief of section 13(1)(d) (iii) of the Income-tax Act - The intent behind the insertion of clause (iia) of the proviso is to exit form non permissible investment, and to convert into permissible investment and not to just change one non permissible investment to another non permissible investment. Following Gurdayal Berlia Charitable Trust. Versus Fifth Income-Tax Officer [1990 (6) TMI 92 - ITAT BOMBAY-B] - The breach of section 13(1)(d) and 13(2)(h) would lead to forfeiture of exemption of income derived from such investment and not the entire income would be subjected to the maximum marginal rate of tax u/s 164(2) - the exemption u/s 11 is available to the assessee only on the income to the extent the same is derived in conformity of section 11 and applied during the year for such purpose of charitable trust. Denial of exemption u/s 10(34), 10(35) and 10(38) of the Act – Claim of dividend income on shares and units and LTCG on sale of shares - Assessee being a trust – Held that:- The exemption u/s 10 is income specific irrespective of the status/class of person - the exemption under section 11 is person specific though on the income derived from the property held under the trust - the exemption u/s 11 is subject to the application of income and modes or form of deposit and investment – Relying upon Commissioner of Income-Tax Versus Divine Light Mission [2004 (4) TMI 25 - DELHI High Court] - agricultural income shall not be included in computing the total income of a previous year in view of section 10(5) of the Act - exemption u/s 11 is available on the income of the public charitable /religious trust or institution which is otherwise taxable in the hands of other persons - the income which is exempt u/s 10 cannot be brought to tax by virtue of sections 11 and 13 of the Act because no such pre condition is provided either u/s 10 or 11 to 13 of Income-tax Act - the benefit of section 10 cannot be denied by invoking the provisions of sections 11 to 13 of the Act - Once the conditions of section 10 are satisfied then no other condition can be fastened for denying the claim u/s 10 of the Act – thus, the dividend income on shares and mutual funds and long term capital gain on sale of shares an exempt u/s 10(34) 10(35) and 10(38) respectively and cannot be brought to tax by applying sections 11 and 13 of the Act – Decided in favour of Assessee. Education grant given to Indian students for studying abroad – Held that:- Following CEO Clubs India Versus Director of Income-tax (Exemption) 2012 (10) TMI 895 - ITAT MUMBAI] - the education grant given to the Indian students in India for education/higher education abroad fulfills the conditions of application of money for such purpose in India – Decided in favour of Assessee. Denial of deduction – Income applied to objects of trust in India – Administrative expenses – Held that:- The AO denied the exemption u/s 11 and computed the income in commercial manner - CIT(A) has recorded that the AO has not made any disallowance on account of administrative expenses - the AO has computed the total income by taking the income from various sources and has not allowed any deduction - the question of exemption u/s 11 is required to be remitted back to the AO for reconsideration – Decided in favour of Assessee. Denial of TDS credit – Held that:- CIT(A) has directed the AO to verify and allow the claim of TDS – thus, no grievance arises from the order of CIT(A) – Decided against Assessee. Applicability of MAT to the entire income – Denial of applicability of rate of tax to STCG and LTCG – Held that:- The rate of tax on short term capital gain arising from sale of equity shares is provided u/s IMA as 15% - relevant income which is derived from the property held under trust wholly for charitable or religious purpose is charged to tax as per the provisions of section 164(2) - When the short term capital gain arising from the sale of shares subjected to STT is chargeable to tax at 15% then the maximum marginal rate on such income cannot exceed the maximum rate of tax provided under the Act - the short term capital gain on sale of shares already subjected to STT, is chargeable to tax at maximum marginal rate which cannot exceed the rate provided u/s IMA of the income Tax Act – Decided in favour of Assessee.
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2014 (5) TMI 889
Transfer pricing adjustment –Selection of comparables -Avani Cincom Technologies Ltd. – KALS Information Systems Ltd. – Held that:- The TPO has included this company in the final set of comparables only on the basis of information obtained u/s 133(6) of the Act - it was the duty of the TPO to have necessarily furnished the information so gathered to the assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables - Non-furnishing the information obtained u/s 133(6) of the Act to the assessee has vitiated the selection of this company as a comparable – thus, the matter is remitted back to the AO/TPO for fresh adjudication. Infosys Technologies Ltd. – Held that:- The assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable - it owns significant intangible and has huge revenues from software products - the breakup of revenue from software services and software products is not available - the company ought to be omitted from the set of comparable companies. Tata Elxsi Ltd. – Held that:- This, company is predominantly engaged in product designing services and not purely software development services - The details in the Annual Report show that the segment "software development services" relates to design services and are not similar to software development services performed by the assessee - Tata Elxsi Ltd. is not a software development service provider and therefore it is not functionally comparable – the company is not to be considered for inclusion in the set of comparables. Wipro Limited – Held that:- The company is engaged both in software development and product development services - There is no information on the segmental bifurcation of revenue from sale of product and software services - The TPO appears to have adopted this company as a comparable without demonstrating how the company satisfies the software development sales 75% of the total revenue filter adopted by him - Another major flaw in the comparability analysis carried out by the TPO is that he adopted comparison of the consolidated financial statements of Wipro with the stand alone financials of the assessee which is not an appropriate comparison. Corporate Tax - Deduction u/s 10B of the Act – Held that:- Following CIT v. Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] - while computing the deduction u/s 10A/10B of the Act, if the export turnover in the numerator is to be arrived at after excluding certain expenses, then the same should also be excluded from the total turnover in the denominator – the AO is directed to exclude the above mentioned expenses on communication and travel incurred in foreign currency both from export turnover as well as from the total turnover while calculating the eligible deduction u/s 10B of the Act – Decided in favour of Assessee.
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2014 (5) TMI 888
Commission paid to various sales agents - Addition of miscellaneous sales expenses – Held that:- Payment of commission to sales agents in assessment year 2002-03 consist of two parts - the first being payment made to sales agents directly and second is amount depicted on export realization certificates claimed to have been paid as commission - Regarding first part though the payments on account of receipt of commission has been confirmed by recipients yet they could not establish as to why commission was paid i.e. for what services the commission was paid - The expenses from the income of any assessee who is engaged in business or profession are allowed only if they are incurred wholly and exclusively for the purpose of business which essential ingredients was not established in the present cases as the recipients did not explain the nature of services rendered by them. Before making disallowance the AO should have examined the nature of services by examining the assessee which he had not done – the second component of commission expenses relates to payments of commission to foreign parties – there certificates the word mentioned is discount and not commission - thus, the matter is remitted back to the AO for re-adjudication on the basis of nature of services rendered by the recipients may allow the same if found to have been incurred by the assessee wholly and exclusively for the purpose of business and also to examine as to whether the discount claimed on export realization certificate was claimed by the assessee as reduction from turnover or whether the assessee had claimed it as a separate item of expenditure and if on examination it is found that discount – The AO should also examine as to what on the basis of examination of vouchers etc. and on the basis of nature of expenses can arrive at the appropriate decision - Decided in favour of Assessee. Addition of arrears of salary paid to the Directors of the company – Held that:- From the copy of resolution it has been found that the increase in salary was with retrospective effect and some part of it related to earlier year but the liability to pay with retrospective effect happened due to resolution passed on 18.1.2002 - the payment of the salary cannot be said to belong to earlier years – the amount has been included as arrears of salary in the incomes of the three directors - there is no loss to revenue as all the three directors were in the tax bracket of 30% - Decided partly in favour of Assessee.
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2014 (5) TMI 887
Validity of order u/s 147 of the Act – Mere change of opinion - Claim of deferred revenue expenses – Held that:- CIT(A) has clearly made a finding that the issue of deferred revenue expenses had cropped up in the regular assessment proceedings for the AY under consideration and the assessee company vide its letter dated 14.09.2005 had submitted a detailed explanation of the - CIT(A) held that the AO could not have held that the issue of deferred revenue expenditure was not examined by the AO in the scrutiny proceedings u/s 143(3) - from the records it could not be found that subsequently after AY 2001-02, any action other than the reassessment has been taken by the department to reopen the assessments of earlier years where deferred revenue expenses have been claimed in its entirety by the assessee company and which were allowed by the AO - there was no fresh material, let alone any tangible material in the possession of the AO so as to empower/ enable him to take recourse to the provisions of section 147 of the Act - the conclusion of the CIT(A) that the reopening of assessment was based merely on change of opinion is correct – Decided against Revenue. Deletion of addition on capitalizing of expenses – Development of new product – Held that:-Following Radhasoami Satsang Vs. CIT [1991 (11) TMI 2 - SUPREME Court] - the treatment given to a particular item of the expenditure in books of account should not by itself be taken as conclusive evidence for treating the expenditure as capital or revenue expenditure - The law empowers the AO to assess the income of the assessee according to law and determine the tax payable - he cannot assess an assessee on an amount, which is not taxable in law, even if the same was shown by an assessee - There neither are any estoppels by conduct against law nor is there any waiver of the legal right as much as the legal liability to the assessed otherwise than according to the mandate of the law - CIT(A) has correctly concluded that the expenses would reveal that the expenses incurred by the assessee in both the Years is such, which will not create any capital asset in the hand of the assessee- the expenses cannot give any advantage of enduring nature in the capital field – thus, there was no infirmity in the order of the CIT(A) – Decided against Revenue.
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2014 (5) TMI 886
Amount payable to be treated as Royalty u/s 9(1)(vi) of the Act or not – Tax liability for receipts from SCB India - retrospective amendment - Held that:- The liability or otherwise of the assessee regarding its receipts has to be re-adjudicated in the light of retrospective amendment - The orders passed in the assessee's case by the AO, DRP and ITAT are prior to the amendment in the Statute – thus, the matter is remitted back to the AO for re-adjudication – Decided in favour of Assessee. Validity of reassessment for earlier years - income escapement assessment - Held that:- In view of discussion since all the issues raised on merits for the AY 2008-09 are directed to be re-adjudicated as per law, then the validity of reassessment proceedings for the AY 2006-07 and 2007-08 cannot be upheld. Upholding the validity of reassessment in the present case will tantamount to upholding the validity of the two assessments at a time of the same assessee in respect of same assessment year, which is not permissible in the eyes of law. - Decided partly in favor of assessee.
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2014 (5) TMI 885
Recall of order – Rectification of mistake apparent on record u/s 254(2) of the Act – Various disallowances made – Held that:- The assessee had claimed payment of remuneration including incentive to Mr. Ajay Sukhwani under the head "Incentive to directors" – assessee contended that only a sum of Rs.3,60,000/- was paid to Mr. Ajay Sukhwani on account of consultation charges and the Tribunal has committed an error while observing that a sum of Rs.7,20,000 was paid - even if the plea of the assessee is to be admitted that no consultation charges were paid to Mr. Ajay Sukhwani, then the deduction claimed by the assessee in this respect will be required to be deleted and accordingly the incentive claim as allowed to the other two directors of the company at the rate of Rs.3,60,000/- is to be allowed to Mr. Ajay Sukhwani - The net tax effect of any such disallowance/deduction will be nil in that event also - The assessee even did not point out the double benefit claimed and allowed to the assessee during the argument on merits in the main appeal before the Tribunal - when definite factual observations were made by the Tribunal that an amount of Rs.7,20,000/- had already been paid to Mr. Ajay Sukhwani and no further incentive was justified then the assessee has come up with the stand that the earlier deduction was wrongly claimed by the assessee. The assessee through this application has attempted to dissect the order of the Tribunal into pieces then to vent out his dissatisfaction regarding the finding arrived at by the Tribunal on the factual matrix of the case in the garb of application u/s 254(2) alleging mistakes apparent on the record - The mistakes pointed out by the assessee do not fall in any manner even in the definition of mistakes, what to say of any mistake apparent on the record - If the assessee had not been satisfied with the order of the Tribunal, the proper course for him was to file an appeal before the higher Appellate Authority - even the scope of provisions of section 254(2) is very limited and the Tribunal has got no authority to recall or review its entire order passed on merits of the case – Decided against Assessee.
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2014 (5) TMI 884
Entire sale consideration taxed – Sale of land – Computation of capital gain - Family agreement – Documents not registered for stamp duty purpose – Held that:- Following Shashikant Laxman Kale And Another Versus Union of India And Others [ 1976 (1) TMI 172 - Supreme Court Of India] - family arrangement entered into with a view to resolve family dispute, which is bonafide, voluntary and not induced by fraud, coercion or undue influence does not require registration - Such family arrangement by itself would convey right, title and interest in immovable property without any further requirements - the family arrangement as per the written document has been effected on 11/11/2005 which is much prior to the sale of the property - in the registered sale deed all the family members are parties in respect of their respective shares as per the family arrangement. The assessee is required to prove as to whether the family arrangement dated 11-11-2005 has been acted upon in letter and spirit - assessee has also refused to accept the family arrangement by observing that there is no relation between the share of lands of the family members as per partition deed and the sale consideration shown in their hands - There is no evidence on record to show that the family members actually became owners of the properties falling into their irrespective shares as per the family arrangement - no document has been produced to establish ownership of the property in the name of the family members as per the partition deed - no such evidence was also produced before the authorities - it is difficult to accept the assessee’s claim of division of property as per the partition deed dt. 112005 - entire sale consideration at the hands of the assessee for computing capital gain – Decided against Assessee. Rejection of claim of indexation from 1981 – Held that:- There was no infirmity in the order of the revenue authorities - the assessee has contended that the land in question was received by assessee’s family earlier to 1981 - thus, fair market value of the property as on 1/4/1981 should be taken for indexation, but there are no material on record to show that assessee’s family were owners of the property prior to 1981 - the certificate dated 24-2-1993 issued by the Revenue Divisional Officer clearly proves the fact that the assessee became owner of the property in the year 1992-93 as a result of purchase from the original owners – Decided against Assessee. Denial of exemption u/s 54F of the Act – Assessee more than one house on the date of sale of the property – Held that:- The assessee did not hold more than one property as alleged by the AO, but the discussions made by the CIT (A) - The assessee has not been able to controvert the finding of the CIT (A) with supporting evidence - the assessee has not been able to prove that the so called family arrangement was actually acted upon, the assessee’s claim that after the family arrangement the assessee was not the owner of any residential house cannot be accepted – thus, the order of the CIT(A) is upheld – Decided against Assessee. Claim of 40% of sale consideration – Liability for capital gain – Held that:- Capital gain cannot be computed on 60% of the land as there is no cost of acquisition - The AO well as the CIT (A) rejected the contention of the assessee - AO after examining the provisions of the Tenancy Act, 1950 has held that the ratio of 60:40 has been imposed only for the purpose of protecting the interests of the protected tenant as well as his family members so long as they continue to be the tenants - as per the certificate issued by the Revenue Divisional Officer the land was purchased by the assessee and his family members - the finding of the CIT (A) that the cost of acquisition to the extent of ₹ 27,200/- to be made applicable to the entire land appears to be logical and appropriate – there is no reason to interfere with the order of the CIT (A) – Decided against Assessee.
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2014 (5) TMI 883
Claim of depreciation on pellet manufacturing unit – Held that:- The reason why AO denied the depreciation claim on the new pelletization plant, was that there was no additional power used by the assessee – AO placed too much reliance on the letter sanctioning additional power load - Just because power sanction for additional power load was not given would not be a reason to say that assessee had not started working its new pelletization plant - Non-availability of certification under the Factory Safety Rules, for starting a new boiler from the concerned Boiler Control Authority, could make functioning of the unit irregular - It cannot be considered as sufficient evidence to reach a conclusion that commercial functioning had not started - assessee had produced considerable evidence which all pointed out clearly that assessee had commenced commercial production at least on 27.02.2007 - the order of the CIT(A) took a correct view when he directed depreciation to be allowed on the pelletization plant – Decided against Revenue. Disallowance of commission payment – Held that:- There was an agreement between assessee and M/s. R.B. Steel & Alloys and the commission was paid by the assessee to the said concern as per terms and agreement - The commission was paid after deducting tax and also after effecting service tax payment - Similar commissions paid in the preceding years were allowed by the Revenue - There is no case for the Revenue that M/s. R.B. Steel & Alloys was in any way related to the assessee - Commission of @ Rs.25/- per MT on sponge iron sold, and could not be considered as excessive payment - There was nothing on record to show that commission incurred was not for the purpose of business of the assessee –CIT(A) was justified in deleting the disallowances – Decided against Revenue. Allowability of keyman insurance premium – Held that:- Keyman’s Insurance policy was on the Directors of the assessee-company - Premium paid was for their life insurance - Relying upon CIT -vs. - B.N. Exports [ 2010 (3) TMI 186 - BOMBAY HIGH COURT] - Keyman’s Insurance Policy premium paid on persons who are instrumental for the effective functioning of a business, is an allowable deduction – thus, there was no infirmity in the order of the CIT(A) – Decided against Revenue. Deletion on account of interest – Held that:- Nothing was brought on record by the revenue to rebut the findings of CIT(A) - the stand of CIT(A) is upheld that Pelletization plant of the assessee had started functioning during the relevant previous year – thus, CIT(A) was justified in deleting the disallowance of interest – Decided against Revenue. Disallowance u/s 36(1)(va) of the Act – Employees’ contribution to Provident Fund - Held that:- CIT(A) had allowed the claim based on a specific finding stated that the amounts were deposited before the due date of furnishing the return of income – Following CIT -vs.- Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] - Even employees’ contribution to P.F., if remitted before the due date of filing of return of income is allowable – there was no reason to interfere with the direction of CIT(A) – Decided against Revenue.
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2014 (5) TMI 882
Exemption u/s 10B - abnormal increase in profit - allegation of showing access profit to claim exemption / deduction - Restriction on deduction invoking the provisions of section 80IA(10) - Held that:- In the returns of income filed for all the three years, deduction u/s 10B of the Act was claimed by the assessee in respect of the profits derived from the eligible export business, the turnover of which was entirely made by the assessee company to APAG, Germany, one of the joint venture partners in the assessee company - the assessee is entitled to deduction u/s 10B of the Act in respect of the profits of the eligible business - The claim of the assessee for deduction u/s 10B of the Act was restricted by the AO for all the three years by invoking the provisions of section 80IA(10) of the Act which are made applicable in relation to the deduction u/s 10B as per section 10B(vii) of the Act. The increase in gross profit rate for the years as compared to that of A.Y. 2002-03 which was taken by the AO as the year of ordinary profits thus was properly explained by the assessee and keeping in view the explanation which was based on the relevant facts and figures - the CIT(A) was fully justified in holding that the profits of the assessee company from its eligible business for the years could not be regarded as more than the ordinary profits which are expected to rise in such eligible business so as to attract the provisions of section 80IA(10) of the Act - the AO was not justified in invoking the provisions of section 80IA(10) of the Act to restrict the deduction claimed by the assessee u/s 10B of the Act – Decided against Revenue. Transfer pricing adjustment – Held that:- Following ITO v. Zydus Altana Healthcare (P.) Ltd. [2010 (4) TMI 883 - ITAT MUMBAI] - it was an organization which was mainly doing the clinical research activity - when the TPO was adopting it as a basis for comparing the assessee's transaction then as per Rule 10B (1)(a)(ii), she was required to adjust in regard to differences . As per sub-clause (iii) of clause (c) of Rule 108, when cost method is adopted, the normal gross profit is required to be adjusted to take into account the functional and other differences, if any, between the international transaction and the comparable uncontrolled transactions - the assessee was solely dependent on the data provided by the doctors in various hospitals - The main function of the assessee was to collate the data and transmit the same to Byk Gulden for which it was suitably reimbursed by Byk by mark up of 5% over the cost - The assessee's functions were more like coordinator/facilitator rather than performing the function itself - the assessee has also pointed out that the profits by the AEs have been subjected to tax in the respective overseas jurisdiction - there is no necessity for the assessee to transfer the profits in any overseas jurisdiction – thus, there was no infirmity in the order of the CIT(A) setting aside the additions made by the AO on account of TP adjustment – Decided against Revenue.
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2014 (5) TMI 881
Deletion of LTCG as non-genuine - transactions in shares - Deletion of undisclosed commission paid for arranging accommodation entries – Held that:- The assessee furnished certain additional evidences under Rule 46A of the I.T. Rules, those evidences could not be furnished before the AO, but those were relevant to decide the controversy - CIT(A) forwarded those additional evidences to the AO for his comment - Additional evidences furnished by the assessee were examined by the learned CIT(A), who also considered the remand report of the AO and categorically stated that the assessee furnished complete details of the transactions of the shares i.e statement of demat account, list of share trading, quotations of Madhya Pradesh Stock Exchange, certificate of Registrar of Companies, which clearly proved that the assessee entered into the transaction and the sale of the shares of M/s Suma Finance & Investment Ltd., which were listed with Madhya Pradesh Stock Exchange was affected to demat account - CIT(A) also verified that the sales proceeds had been received through banking channel and that any sale of the shares was not possible through demat account, if the shares were not listed in some stock exchange. The assessee was having proper demat account and sold the shares which were listed in the Madhya Pradesh Stock Exchange, the sale proceed received by the assessee through bank channel was not doubted by the AO - The purchase of the shares was through a broker and nothing is brought on record to substantiate that the said broker was not in existence at the relevant time when the purchases were made - the transactions entered into by the assessee was a genuine transaction and as the shares were purchased on 04/04/2003, which were sold on 10/06/2004, the holding period of the shares was more than 12 months as such the profit earned by the assessee on account of sale of shares, which were held for more than 12 months was long term capital gain – there was no infirmity in the order of the CIT(A) on the issue. CIT(A) has stated that the brokerage was deducted from the share consideration by the broker and only balance amount was paid to the assessee through demand draft - The observation of the CIT(A) was not rebutted - the CIT(A) has rightly deleted the addition on account of commission/brokerage made by the AO on the basis of presumption - CIT(A) rightly deleted the additions made by the AO and there was no valid ground to interfere with the of the CIT(A) – Decided against Revenue.
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2014 (5) TMI 880
Transfer pricing adjustment – Guarantee charges for guarantee to AE – Held that:- The TPO had noted that the assessee has given corporate guarantee aggregating to Rs.86.45 crores on the loans given by the banks to the A.E. in Singapore and Australia - The assessee has charged / offered 0.20% of the guarantee commission from the A.E. The TPO has held that such guarantee fee / commission is an international transaction which has to be bench marked with external comparables - there is a huge risk involved in giving the guarantee on the loan taken by the subsidiary and also it gives huge advantage and benefit to the A.E. in getting the loans, which otherwise would have been difficult on such terms and conditions - There could be instances, where on the evaluation of various parameters, of financial credibility and stakes of the client, the bank may not charge any guarantee commission which completely depends upon its evaluation, of a particular client. No charges have been paid on account of guarantee commission as has been submitted by the assessee - Simply relying upon certain data from the market without carrying out any comparability analysis of the actual transactions undertaken, such an application of guarantee commission rate cannot be applied in a blanket manner in all the cases - when there was an internal CUP in the form of bank guarantee charges, charged by the bank from the assessee, the same ought to have been first analysed and examined wherein the guarantee commission charged ranged between 0.25% to 0.35% - in the earlier years, the Tribunal has deleted the similar addition and no question of law on this score has been raised by the Department - no upward adjustment in the ALP in relation to charging of guarantee commission over and above 0.20% can be made and, accordingly, the adjustment so made by the TPO / A.O. is hereby set aside – Decided in favour of Assessee. Disallowance of notional interest free loans – Held that:- The AO and the as well as the material available on record - it cannot be held that the assessee has given advance / loan to the subsidiary company directly out of interest bearing funds - The disallowance so made by the AO cannot be sustained - the advance / loan given to subsidiary was solely for the purpose of assessee’s business - the assessee has huge interest free funds with it at the time of giving such advance – Relying upon SA BUILDERS LTD. Versus COMMISSIONER OF INCOME-TAX [2006 (12) TMI 82 - SUPREME COURT] - such a disallowance of interest is uncalled for – Decided in favour of Assessee. Disallowance of professional fees paid as capital expenses – Held that:- The entire agreement goes to show that it is for providing intellectual property / proprietary information in the form of technical knowhow to the assessee which is permanent and has huge enduring value and benefit to the assessee in creating an asset - It is not merely a technical consultancy for day-to-day running of the manufacturing process or business but the whole package of technical knowhow which will have enduring benefit to the assessee company and will go to create an intangible asset - is definitely in the nature of capital expenditure – the findings of the AO as well as the DRP to this extent, are factually and legally correct - the directions of the DRP to the extent of Rs. 1.20 crores is upheld, which was a lump-sum payment, is in the nature of capital expenditure, whereas, the balance sum of Rs.36 lakhs which was on account of monthly remuneration - the addition made by the AO would be restricted to Rs.1.20 lakhs – Decided partly in favour of Assessee. Disallowance towards advertisement expenses as capital expenses – Held that:- If any advertisement does not give the details of the product this does not ipso-facto means that it is not for the promotion of product - The product in the market is known by its brand which is owned by the company which creates the product - The brand building of the corporate in such advertisement is inherent and it cannot be inferred that such an advertisement goes to create a fixed capital - advertisement creates on impression of the brand and product in the mind of the consumer and if there is no frequent advertisement of brand or the product, it is very difficult to push sales in the market - The advertisement on the TV, whether be it for the brand or the product, only goes to enhance the sales and profitability of the assessee company it to be held as revenue in nature - such an expenditure incurred on advertisement on TV has to be allowed as revenue expenditure – Decided in favour of Assessee. Disallowance u/s 14A r.w. rule 8D of the Act – Held that:- Provisions of rule 8D cannot be held to be applicable for the AY 2006-07 – Relying Godrej & Boyce Mfg. Co. Ltd. v/s DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] – the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee.
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2014 (5) TMI 879
Computation of capital gains – nature of land at the time of valuation i.e. as on 1-4-1981 - conversion of agricultural land into non-agricultural land in the year 2005 - Held that:- The assessee’s consistent contention has been that land should have been valued as non-agricultural land as on 01-04-1981 and the valuation of non-agricultural land as on 01-04-1981 should be adopted for calculating the long term capital gain on the ground that since the land when sold was non-agricultural land after conversion, it should be treated as non-agricultural land even before the date of conversion - This contention was backed by another argument that such treatment of agricultural land would bestow greater benefit on assessee which was the purpose of the provisions of law regarding applying cost inflation index while calculating long term capital gain. This argument is devoid of merit in view of the factual matrix of this case that as on 01-04-1981 land was agricultural land and to apply cost inflation index the same cannot be treated as non-agricultural land as on 01-04-1981 simply because the same was converted into non-agricultural land subsequently in the year 2005 when the same was sold as non-agricultural land - lower authorities have rightly treated this land as agricultural land as on 01- 04-1981 and assessing officer has rightly taken the valuation of the land @ 2.32 per sq. ft on the basis of comparable instances obtained by him from the concerned authorities - as per the provisions of section 55A of the Act, the AO may refer the matter to DVO in case valuation of any property on the basis of registered valuer has been shown by the assessee less than the market value - the situation is revere as in this case the assessee has shown value of the land as on 01-04-1981 more than the market value – the order of the CIT(A) is upheld – Decided against Assessee.
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Customs
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2014 (5) TMI 903
Quantum of conviction of sentence - Held that:- There is no dispute that Section 123 of Customs Act applied to the facts of the case and in view of the relevant provision, punishment as prevailing at that time was a minimum of three years imprisonment. Thus the sentence required to be imposed on the respondent even on plea bargaining in terms of Section 265E(c) was one and a half years imprisonment. The respondent in this trial had remained in custody for a period of 7 months. Thus the learned Trial Court committed serious illegality in sentencing the respondent on the period of imprisonment already undergone when the minimum sentence required to be awarded under Section 265E (c) was 1 year. Consequently the impugned order of the learned ACMM is set aside - Matter remitted to re hear fresh - Decided in favour of Revenue.
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2014 (5) TMI 902
Benefit of Notification No. 21/2002-Cus., dated 1-7-2002 - Non fulfillment of conditions of Notification - Held that:- Notification No. 21/2002-Cus. prescribes exemption on road construction equipment imported by certain category of importers and the person to be eligible for the benefit has to satisfy the Condition No. 40 - to claim the benefit of the exemptions, the appellant should have been named as sub-contractor in the contract awarded by NHAI to M/s. Gorakhpur Infrastructure Co. Ltd. Since, the appellant has not been named as sub-contractor in the contract awarded by NHAI to M/s. Gorakhpur Infrastructure Co. Ltd., the appellant does not satisfy the condition of the eligibility - Decided against assessee.
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Corporate Laws
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2014 (5) TMI 901
Validity of Regulations 6, 7, 14, 16, 17, 19, 20, 21(1)(b), 23, 24 and 25 - Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 - Regulations "completely muzzle" the fundamental right guaranteed by Article 19 (1) (c) of the Constitution, on a citizen to form an association by choosing its members and directors - regulations "totally supplant" the provisions of Section 4(b), 5, 7A, 11 and 31 of the SCRA and Rules 4, 5 & 6 (read with Form A) of the Securities Contracts Rules5 - regulations "sail far beyond the bounds set down by the SCRA and the rules and since they constitute sub delegated legislation, must yield to the statute - prohibition on the fundamental right to carry on business and trade under Article 19 (1) (g) - Held that:- Stock exchanges are, as the Jalan Committee observed, vital elements of the economic infrastructure of a modern economy. They provide a platform for investors to transact in securities. The probity and integrity of the functioning of stock exchanges deeply reflects upon the sense of confidence which investors have in the securities market. These investors are not just individual investors but institutional investors. Investments in the stock market are not confined to national boundaries but have a transnational character. Institutional decisions to invest in the stock market have a close and integral connection with the state of the economy, financial stability and the nature of regulatory governance. The market for securities has an integral connection with the allocation of capital and financial resources in a modern economy. Anything which affects the stability of the capital market has an impact on investor wealth and can severely imperil a stable financial order. Hence, the requirements which have been imposed by the SECC regulations must be assessed in the backdrop of the need to ensure transparency in the functioning of the securities market. Coupled with this is a felt necessity of ensuring the financial stability of stock exchanges, the dispersal of ownership and the avoidance of conflicts of interest which can jeopardize a stable and efficient market for securities. Regulation 20 (1) SECC Regulations stipulates when a person shall be deemed to be fit and proper. Undoubtedly, the considerations which have been specified in Regulation 20 (1) (a) have a broad connotation, but the Court must be circumspect in striking down such a provision on the anvil of a scrutiny with a fine-tooth comb because so long as they fall within the general ambit of reasonableness, the regulation must be sustained. Financial integrity, reputation, character and honesty are matters which have a serious bearing on the objective, transparent and fair functioning of the securities market. Regulation 20 (1) (b) similarly specifies that the person should not have undergone any of the stated disqualifications. Though, the decision of SEBI on whether a person is fit and proper person has been made final, such finality would exclude the jurisdiction of a civil court. At the same time, a right of appeal is available under Section 15T (1) (a) of the SEBI Act to the Securities Appellate Tribunal to any person aggrieved by an order of SEBI made under the Act or the rules or regulations. When SEBI rejects an application for want of satisfaction of the fit and proper criterion, it must, in our view, record reasons which would be amenable to the appellate jurisdiction of the Tribunal under Section 15T. Recording of reasons would ensure that the exercise is not based on a subjective assessment but is based on an objective analysis. There is no merit in the challenge, which has been leveled by the petitioners to the SECC Regulations. The Regulations are not ultra vires SCRA. They do not supplant the SCRA or travel beyond the bounds which are set by the statute or rules made thereunder. There is no merit in the contention that the regulations muzzle the fundamental right guaranteed under Article 19 (1) (c) or infringe the right to carry on trade or business under Article 19 (1) (g) - Decided against Appellants.
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Service Tax
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2014 (5) TMI 918
Security services - Demand of service tax - determination of quantum of demand - deduction on account of bad debts - Discrepancy in invoices issued - In one set, the service was mentioned as security service while in other invoice, though the amount charged, service receiver, number, amount were same, the service indicated was labour service - Held that:- Respondents have not questioned any details given in respect of various invoices and details of Annexure B. We also observe that instead of explaining invoice-wise details, the respondents have chosen to give certain figures year wise or consolidated for all the years. We also observe from para 5.2 above that the quantums given before original authority and first appellate authority varies widely. Thus the figures given by the respondents do not appear to inspire any confidence. In any case, service tax is collected invoice-wise and is required to be deposited on the basis of total collection in a month/quarter. We also observe that in Annexure B to the show cause notice, total amount of security services as also the service tax collected has been shown. Both the figures are based upon the respondents own invoices issued to various clients and recovered during the visit of the Central Excise officials. In respect of the service tax amount charged and collected, we do not see any reason why the said amount should not be paid to the Government account - Commissioner (Appeals) has fallen into error in taking certain figures (year wise or consolidated for the total period) instead of examining invoice wise/transaction wise details. - Duty, interest and penalties u/s 76 & 78 are confirmed against assessee - Decided in favour of Revenue. Valuation - Deduction on account of bad debts - Held that:- It is not clear how much of these bad debts were pertaining to taxable service and how much were pertaining to labour service/non-taxable service. It is also not very clear that these bad debts were pertaining to which period i.e. for the period prior to 16.10.1998 or the later. We, therefore, direct the respondents to give the details of the bad debts invoice-wise, i.e the respondents should inform the authorities invoice-wise (as detailed in Annexure B to the show cause notice) wherever recovery could not be made by them till date - matter remanded back. No hesitation in holding that extended period of limitation is applicable in this case and penalties both under Sections 76 and 78 are imposable. Penalty under Section 77 is also imposable.
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2014 (5) TMI 917
Denial of refund claim - software development services - various input services - Held that:- If the credit is availed by the manufacturer, then the said service should have been utilised by the manufacturer directly or indirectly in or in relation to the manufacture of final products or used in relation to activities relating to business. If any one of these two tests is satisfied, then such a service falls within the definition of ‘input service’ and the manufacturer is eligible to avail CENVAT credit of the service tax paid on such service. As regards the credit in respect of service tax paid subsequent to July 2008 claimed as refund in respect of CENVAT credit accumulated during the month of July 2008, the submissions made by the learned counsel are not acceptable. If the CENVAT credit account is correctly maintained, the credit could not be taken in the account in the month of July 2008. When credit could not have been taken, question of accumulation of credit because of inability to utilize does not arise. Just because of the refund claim filed in November 2008 and because appellant did not follow the correct procedure for availing the CENVAT credit, the appellant find themselves in a situation wherein they have claimed accumulated CNEVAT credit before payment and availment of credit. That being the position, the decision of the lower authorities to disallow the credit cannot be found fault with. . The refund claim amounting to ₹ 3, 39,152/- rejected by the lower authorities being the amount of service tax paid subsequent to July 2008 is held to be inadmissible and the decision of the lower authorities is upheld. The balance amount claimed by the appellant and disallowed by the lower authorities is held as admissible. - Decided partly in favour of assessee.
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2014 (5) TMI 916
Penalty u/s 77 & 78 - Tour Operator Service - Held that:- Section 165(105)(n) covers only the tours operated in tourist vehicles which conformed to the specifications prescribed in this regard in Rule 128 of the Central Motor Vehicle Rules. Since during the period of dispute, a person operating tours in a contract carriage, not covered by the definition of ‘Tourist Vehicle’, was not covered and only the persons operating tours in tourist vehicles were covered by definition of ‘Tour Operator’, the respondent, in this case, who were operating tours in the vehicles, which were not the tourist vehicles in terms of Section 2(43) of the Motor Vehicle Act, read with the Rule 128 of the Central Motor Vehicle Rules, would not be covered by the definition of ‘Tour Operator’. We, therefore, do not find any infirmity in the impugned order. - Decided against Revenue.
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2014 (5) TMI 915
Valuation of services - clearing and forwarding agent service - whether the demurrage/wharfage and expenses for local transport are includible in the assessable value of the service - Held that:- In terms of the respondent’s contract with PCL, the respondent maintain godown at their principal s cost at various places for storage of cements and maintain proper records of receipt and dispatch of the cement. They are fully responsible for making arrangements for unloading/loading at railway stations/godowns and transportation thereof to various dealers/ stockiests, as per the directions of their principal. The wharfage/ demurrage is charged by the railways on account of detention of the goods in the rakes or at railway premises beyond the permissible period. This amount charged by the railways is paid by the respondent and is reimbursed to them on actual basis. The Commissioner (Appeals) in the impugned order has given a finding that he has examined a few samples of the railway receipts regarding demurrage/wharfage charges and he finds that the said amount are shown to have been received from PCL and that in view of this, he finds that the appellan’s submission that they had acted only as a pure agent is correct. As regards the local transport, the same is arranged by the respondent for sending the goods to the PCL’s godowns on their behalf or sending the same to various parties on the instructions of PCL. As per the findings of the Commissioner (Appeals), the goods are loaded in the trucks/lorries mentioning PCL as the consignor and the appellant pay the freight only as an agent of PCL for which they are reimbursed. Here also, the respondent would have to be treated as pure agent of the PCL for payment of expenses for local transport. Thus, in respect of both, demurrage/wharfage charged by the railways and expenses on local transport, the respondent have acted only as agent of PCL and, as such, the expenses for these items reimbursed to them on actual basis by their principal - PCL would be not includible in the assessable value of the C&F agent services provided by them - Decided against Revenue.
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2014 (5) TMI 914
Demand of service tax - Tour Operator Service - operating contract carriage buses from Hyderabad to Shridi - Held that:- Since the service provided by the petitioner during the relevant period falls within the ambit of tour as defined in Section 65 (113); the petitioner falls within the ambit of the definition of tour operator defined in Section 65 (115); and the service provided by the petitioner falls within the ambit of the taxable service enumerated in Section 65 (115)(n), the petitioner cannot gainfully contend that it did not provide the taxable tour operate service. - Decided against assessee.
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2014 (5) TMI 913
Denial of refund claim - Technical Consultancy and Management Services - Held that:- It is evident from the facts and circumstances of the present case that no service was rendered and the tax was paid mistakenly, which was claimed as refund after repayment of full amount of advance received along with the amount of interest to the depositor of the amount and as such, I find that the Order-in-Original dated 31.5.2006 is correct and as per law, granting refund to the appellant. - Decided in favour of assessee.
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Central Excise
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2014 (5) TMI 910
Duty demand - Clandestine removal of goods - whether the goods found stored in the various outside godowns are the goods clandestinely manufactured and cleared by the respondents M/s. Kuber Tobacco Products Pvt. Ltd. and M/s. Kuber Khaini Pvt Ltd. - Held that:- Entire case of the revenue is based upon by the recovery of the goods from the godowns, which the present respondent has specifically denied any connection with. The revenue case is that the said goods have been clandestinely manufactured and cleared by the respondents. There is virtually no evidence lending any credence to the said allegation. On the contrary, certain persons have surfaced during investigation and have claimed the ownership of the said goods. In the absence of any evidence showing that the goods in question were manufactured by the respondent and were cleared by them without payment of duty, I find no reasons to disturb the findings of Commissioner (Appeals) inasmuch as Revenue’s entire case is based upon assumptions and presumptions - Decided against Revenue.
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2014 (5) TMI 909
Duty demand - Clandestine removal of goods - Shortage of asbestos sheets - Held that:- entire case of the Revenue is based upon the fact that waste which generates during the manufacture of asbestos sheets as also during further course of reclamation (for which the appellants have produced figures) stand cleared by the appellant in a clandestine manner and the duty stand confirmed in respect of such shortages on the allegations that same stand cleared clandestinely. Apart from the fact that said waste cannot be held to be dutiable, I also find that apart from the fact that shortages which stand admitted by various persons in their statements recorded during investigation, there is virtually no evidence on record to show that the said waste stand cleared by the appellants in a clandestine manner. From the photos produced before me, it is seen that said waste is in the nature of small piece of asbestos sheets and stand spread in and around the premises, in which case, it will not only be difficult but impossible to weigh the same. Otherwise also, I also find that in the absence of any evidence to show clandestine removal of the same, which in any case were not excisable, confirmation of demand against the assessee cannot be up-held - Following decision of Raj Ratan Industries Ltd. vs. CCE, Kanpur [2012 (6) TMI 72 - CESTAT, NEW DELHI] - Decided in favour of assessee.
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2014 (5) TMI 908
CENVAT Credit - capital goods - movement (transport) of Hydrogen Gas Cylinder outside factory premises for refilling etc. - Held that:- A perusal of the of Rule 2 (a) (A) reveals that the only condition for availing CENVAT Credit on capital goods is their use within the factory of the manufacturer in the manufacture of final products. It is not disputed that the Hydrogen Cylinders are not capital goods. At present there is no requirement under the CENVAT Credit Rules that the capital goods must be installed in the factory of production. Evidently, hydrogen gas cylinders are used within the respondent s factory for manufacture of final products, although the cylinders move out temporarily from the appellant s factory for the purpose of refilling of hydrogen gas. Therefore, the requirement of use of capital goods within the appellant’s factory in terms of the said Rule 2(a)(A) is fulfilled. - Therefore, the temporary to and fro movement of Hydrogen Gas Cylinders for the purpose of refilling of hydrogen gas is otherwise covered by the above provisions of the CENVAT Credit Rules, 2004 - Further, reversal of credit at the time of removal of Cylinders and taking of credit at the time of receipt of duly filled Cylinders will not help Revenue in raising any Revenue as it is Revenue neutral exercise - Decided against Revenue.
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2014 (5) TMI 907
Denial of CENVAT credit - Held that:- CCE vs. Rishi Steels & Alloys P. Ltd. [2005 (8) TMI 271 - CESTAT, MUMBAI] wherein this Tribunal has held that any machinery although received prior to 1.4.2000 and installed and put to use thereafter, CENVAT credit cannot be denied. Therefore, following the precedent decision of the Tribunal in Rishi Steels & Alloys P. Ltd. (supra), I hold that appellant are entitled to take CENVAT credit on the capital goods procured prior to 1.4.2000 which have been put to use after 1.4.2000 - Decided in favour of assessee.
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2014 (5) TMI 906
MODVAT credit - duplicate copy of the invoice was not produced - There was no correlation between the factory to depot to correlate the goods covered under invoice issued to the appellant wherein the mention of factory invoice is given but same was not produced - Held that:- goods/inputs have not been received by the appellant and same has not been used. It is admitted fact that inputs have been received and used in the manufacture of final product. In this circumstances, as held by the tribunal in the appellant's own case [2006 (2) TMI 51 - Appellate Tribunal, Mumbai], the appellant's are entitled to take credit. Further, I find that the correlation of sale invoice of the factory is a curable defect, only a technical lapse. There is no dispute that inputs has not been received and duty not paid. I hold that appellants are entitled to take modvat credit - Decided in favour of assessee.
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2014 (5) TMI 905
Duty demand - Invocation of extended period of limitation - Penalty - Held that:- Prima facie, invocation of the extended period of limitation for confirming demand of excise duty, interest and penalty, where the entire material facts were within the domain and knowledge of the competent authorities service November 2006 to November 2007, is unjustifiable. We therefore find a strong prima facie case in favour of the appellant. Accordingly, we grant waiver of pre-deposit in full and stay all further proceedings for realization of the adjudicated liability, pending disposal of the appeal - Stay granted.
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CST, VAT & Sales Tax
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2014 (5) TMI 912
Taxability u/s 21 - Whether on the facts and in the circumstances of the case, Trade Tax Tribunal was legally justified in knocking down tax imposed u/s 21 of the Act despite the fact that the turnover in question has escaped from assessment as a result of treating the Commissioner Circular dated 23.7.1987 as notification issued by the Gov - Held that:- once the view has been taken by the Assessing Authority granting exemption on the turnover of inter-state sales made to Military Canteens/Canteen Stores Department after applying the provision of Section 8(2-A) of the Central Sales Tax Act on the ground that such sales are generally exempted under the U.P. Trade Tax Act, it is not open to the Revenue Authority to take a different view inasmuch as, such view was based on Government opinion vide letter dated 16th July, 1987 and Circular of the Commissioner of Trade Tax dated 23rd July, 1987. It may be mentioned here that in the presence of circular dated 23rd July, 1987 in which inter-State sales made to Military Canteens/Canteen Stores Department has been categorically held exempted from tax under Section 8 (2-A) of the Central Sales Tax Act, for taking a contrary view, one has to examine the notification afresh and to apply its mind again. - Decided against Revenue.
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2014 (5) TMI 911
Whether the finding of the Tribunal that the transaction is not indivisible works contract executed in Tamil Nadu, is correct and as a corollary, deletion of levy of penalty u/s 3-B of the Tamil Nadu General Sales Tax Act, is correct - Nature of Contract - Indivisible works contract – Deemed inter-state sale - Does insurance borne by assessee change the nature of agreement - Penalty u/s 3-B of the Tamil Nadu General Sales Tax Act – Held That:- A perusal of the Letter of Intent shows that nowhere the Madras office figures in, in any manner to be involved in either in the placing of the contract or in finalising the terms of the contract and above all, in the supply and the erection of the machinery – Thus, with every stage involvement of Neyveli Lignite Corporation, pursuant to the agreement entered into between the parties, the machineries manufactured were delivered to Neyveli Lignite Corporation at Neyveli - Admittedly, the machineries thus moved from Calcutta/Mumbai was in the custody of Neyveli Lignite Corporation - Considering the above said facts, it is crystal clear that the transactions in question satisfies the requirement under Section 3 of CST Act as to when interstate sale deems to occur - Given the fact that the movement of goods was pursuant to the contract of sale, the fact that the insurance coverage was borne by the assessee/supplier, per se, could not stand in the way of the clear cut facts existing in this case, pointing out that the sale could be nothing but an inter-state sale - In the circumstances, these Revisions are rejected. Relying upon Tvl.Gannon Dunkerly and Co. and Others Vs. State of Rajasthan and Others [1992 (11) TMI 254 - SUPREME COURT OF INDIA] - Even works contract assessable under the Local Act is subject to Sections 3, 4 and 5 of CST Act – Going by the definitions of inter-state sale and when a sale or purchase said to take place inside the State u/s 4 of CST Act, which is subject to Section 3 CST Act, there is no hesitation in holding that the transaction cannot be assessed under the provisions of the Local Act - Explanation 3(a) to Section 2 of TNGST Act, which is no different from Section 4 of CST Act, thus clearly goes against the contention of the Revenue - Even in the case of an indivisible contract, what could be taxed under the TNGST Act is the transfer of property in goods - Even though Section 3B was inserted by Act 42 of 1986, after the decision in Tvl.Gannon Dunkerly Section 3B was amended and substituted from 12.3.1993 by Act 25 of 1993. In Tvl.Gannon Dunkerly while considering the 46th Amendment, the Supreme Court pointed out that the State Legislature is not competent and cannot frame its law as to convert an outside sale or a sale in the course of import or export into a sale inside the State and whether the sale is an outside sale or inside sale or is a sale in the course of interstate sale or in the course of import or export would have to be determined in accordance with the principles in Sections 3, 4 and 5 of CST Act - Thus, whether one treats the contract as divisible one or indivisible one, the character of the sale being one of inter-state sale, the contention of the Revenue is rejected - In a contract of this nature, even the theory of accretion would be of any assistance, given the fact that even the charging provision u/s 3B was not available during the relevant assessment years, viz., 1988-89, 1989-90 and 1990-91 - Revisions are dismissed – Decided against Revenue.
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Indian Laws
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2014 (5) TMI 900
Refund claim - Interest - Held that:- in the absence of any further appeal, the Department has no other way except to comply with the order as claimed. By a direction of this Court, the learned senior counsel appearing for the appellant, has brought to our notice that as on date the balance interest payable by Central Excise Authority, as per High Court's order dated 30th September, 2008, is Rs.69,17,613 - there is no dispute about the said quantum, though, learned Additional Solicitor General has pointed out that the rate of interest, as claimed by the appellant, is excessive, we are not inclined to go into the said aspect at this juncture. Accordingly, we direct the respondents to pay Rs.69,17,613/- to the appellant - Decided in favour of Appellant.
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2014 (5) TMI 899
Classification of royalty - whether the royalty is a tax or not - determination of price of coal - The writ petitioners after having adjusted successful bidders purchased the coal upon deposit of the price of the coal as well as the charges, levies & taxes as imposed by the Coal Companies. - maintainability of writ petition being the contract is mutual agreement - alternative remedy - Held that:- The invocation of power of judicial review is a discretionary relief with certain self-imposed restrictions and/or limitations by the Court itself. Ordinarily the writ court does not go into the serious disputed questions on fact when the same is amenable to the other remedies provided either under the contract or under a relevant statute. - The Apex Court in case of Tantia Construction Pvt. Ltd. clearly held that the existence of an alternative remedy is not an absolute bar to the invocation of the writ jurisdiction by the High Court. The identical issue is pending before the larger bench of the Supreme Court and have not been finally decided as yet. This Court, further, does not feel that the action of the said respondents by issuing the aforesaid notices/memos could at all be sustained. The Authorities are, therefore, directed to suspend their action for realization of the said amount from the future contracts, if to be awarded to the writ petitioners at this moment. Since the respondents have themselves chosen to deposit the excise duty on the royalty and stowing excise duty and in fact, paid the same and in the event, the larger bench of the Supreme Court decides the matter holding that the royalty is not a tax, the writ petitioners are certainly bound to pay the excise duty over the royalty. This Court, therefore, feels that equilibrium is required to be maintained. - The writ petitioners are, therefore, directed to give an indemnity bond to the aforesaid respondents indemnifying their obligations to pay the excise duty in such eventuality. Such indemnity bond shall be furnished within two weeks from the date.
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