Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
May 29, 2015
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
PMLA
Service Tax
Central Excise
CST, VAT & Sales Tax
Wealth tax
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Arrears of income tax - Attachment of accounts and money - the jurisdiction of Civil Courts, to entertain the suit, against the Income Tax Department, was barred by Section 293 of the Income Tax Act - HC
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Amortization of premium paid on investments under "held to maturity category" - assessee is entitled to the amortization of security premium, as claimed - HC
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TDS u/s 194I - Premium for acquiring leasehold rights for the leased plot - regulatory clauses cannot convert the lease premium into tenancy as per section 194 I of the Act. - AT
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Benefit of Section 11 - The order passed by the CIT(A) is contrary to the law and facts and on the file by holding that once registration has been granted u/s. 12A of the I.T. Act, AO cannot override exemption while passing the assessment order - AT
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TPA - ALP - CIT(A) held that volume of domestic sale of components/parts was quite insignificant to constitute a valid comparable with the export transactions. For all the aforesaid reasons, CIT(A) has differed with the approach of the TPO in benchmarking - order of CIT sustained - AT
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Eligibility of deduction u/s 10B - each units were not having separate books of accounts but ERP software accounting system was implemented by each of them and transactions of each unit were separately coded all the transaction were identifiable as in the case of separate books - deduction allowed - AT
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Charitable Trust - The fact that the receipts from commercial activities are more compared to the overall receipts of the charitable organization can neither lead to the conclusion that the activities of the trust or institution are not genuine nor it can be said that the activities of the trust or institution are not being carried out in accordance with the objects of the trust or institution - HC
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TDS u/s 195 - As disallowance u/s 40(a)(i) is in respect of purchases made from the AEs, which is in no manner connected with the Commission segment, we hold that the assessee is entitled to the benefit provided by article 24 of the DTAA and cannot be visited with the disallowance u/s 40(a)(i) - AT
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Validity of transfer pricing adjustment - assessee is a job worker and not a manufacturer and the Ld. TPO and DRP erred in including the cost of gold into the operating cost of the assesse - AT
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Addition of capital expenditure claimed under the head “loan syndication charges” - Since the expenditure has not been claimed by the assessee while computing the income under the head “income from business”, therefore, no disallowance under section 40A(2)(a) can be made - AT
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TDS - It is not a case when the land has been compulsory acquired under any law, therefore, in the absence of sect ion 194LA being applicable, no question of any deduction of TDS arises. - AT
Customs
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Validity of detention order - proceedings under COFEPOSA - There is unexplained delay in passing the detention order of approximately 8 months - Further once the order of detention was passed a representation was likely to be made, hence, the same should have been decided within the shortest period of time - period of period of 11 working days are inordinate delay - HC
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Refund claim - Where and admittedly there is a nil assessment order, whether the assessee is entitled to claim refund without making a challenge to such assessment order - Held Yes, refund allowed - HC
FEMA
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Attachment of property - Money laundering Act - whether provisional attachment of the properties in issue, could have been passed without a charge sheet having been filed under Section 173 of the Cr.PC qua the scheduled offences. - Held Yes - HC
Corporate Law
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Application for reduction in issued, subscribed and paid-up share capital under Sections 100 to 105 of Companies Act, 1956 and other applicable provisions of the Companies Act, 2013 read with Companies (Court) Rules, 1959 - there appears to be no legal impediment in allowing the present petition - HC
Wealth-tax
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Wealth Tax - 'urban land' as per Section 2(ea)(v) - Structure standing over the land during the relevant period being a half/semi-finished one cannot come within the exclusionary clause so as to take it out from the ambit of urban land - AT
Service Tax
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Denial of refund claim - Payment received in export of service in Indian rupees from Deutsche Bank - when a foreign bank is maintaining Indian rupees in their account obviously, such Indian rupees was obtained in lieu of foreign exchange - refund allowed - AT
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Extended period of limitation - period 9.7.2004 to 6.11.2005 - Board clarified vide its Circular on 17.10.2005 that software is 'goods', the show-cause notice in the present case was issued only on 2.1.2007 i.e. beyond the normal period of one year - demand set aside - AT
Central Excise
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Denial of Exemption claim - 100% EOU - Scope of Notification No.22/2003 - exemption was not to operate in respect of the additional excise duty levied under the Finance Act, 1999 - HC
VAT
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Valuation - VAT - deduction of consideration / profit of sale of land - works contracts - construction and buildings - proper authority can probe into transactions of land dealings by the developers - said investigation or inquiry would not be necessary on vague and general grievances - HC
Case Laws:
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Income Tax
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2015 (5) TMI 873
Liability to deduct tds - agreements between the assessee and non-residents are not fee for technical services within the meaning of Section 9(1)(vii) so as to oblige the assessee to deduct tax at source under Section 195 as held by ITAT - Held that:- ITAT was unduly influenced by all the regulatory compulsions which the assessee had to face. Besides international convention and domestic law that mandated aircraft component overhaul, the manufacturer itself – as a condition for the continued application of its warranty, and in order to escape any liability for lack of safety, required periodic overhaul and maintenance repairs. Unlike normal machinery repair, aircraft maintenance and repairs inherently are such as at no given point of time can be compared with contracts such as cleaning etc. Component overhaul and maintenance by its very nature cannot be undertaken by all and sundry entities. The level of technical expertise and ability required in such cases is not only exacting but specific, in that, aircraft supplied by manufacturer has to be serviced and its components maintained, serviced or overhauled by designated centres. It is this specification which makes the aircraft safe and airworthy because international and national domestic regulatory authorities mandate that certification of such component safety is a condition precedent for their airworthiness. The exclusive nature of these services cannot but lead to the inference that they are technical services within the meaning of Section 9(1)(vii) of the Act. The ITAT’s findings on this point are, therefore, erroneous. This question is accordingly answered in favour of the Revenue. Whether payments made by the assessee fell within the purview of the exclusionary clause of Section 9(1)(vii)(b) of the Act and were not, therefore, chargeable to tax at source? - Held that:- Coming to the instant case, it is evident that fee which has been named as "success fee" by the assessee has been paid to the NRC. In the present case, the ITAT held that the overwhelming or predominant nature of the assessee’s activity was to wet-lease the aircraft to LCAG, a foreign company. The operations were abroad, and the expenses towards maintenance and repairs payments were for the purpose of earning abroad. In these circumstances, the ITAT’s factual findings cannot be faulted. The question of law is answered in favour of the assessee and against the revenue.
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2015 (5) TMI 872
Reopening of assessment - whether the ATM is a computer or ought to be treated as normal plant and machinery, attracting different rates of depreciation? - Held that:- When the returns for the subsequent years were processed, the AO had disallowed the claim made @ 60% and added a sum of ₹ 3,71,00,000/- to the income of the assessee-Bank, by allowing depreciation @ 15% only, by treating the ATMs as plant and machinery. Keeping in view the fact that the ATMs had been operationalised by March, 2005, reasons were recorded to believe that the income of the assessee, chargeable to tax, had escaped assessment. There is no disputing the fact that the assessment for the said years, i.e., 2005-06 and 2006-07, under Section 143(3) had concluded on 28.11.2007 and 30.11.2007 and determination of tax upon the assessee was made on the basis of the assessment. The proviso to Section 147 provides that no action shall be taken under the said section, after the expiry of 4 years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment, by reason of failure on the part of the assessee to make the return or respond to the notice issued under Section 142(1) or Section 148. The other condition is that there should be disclosure of fully and truly all material facts necessary for the said assessment year. The reason for reopening, thus, being merely a change of opinion on account of the assessment being made for the subsequent years would not give the AO the jurisdiction to reopen as he would, thus, be reviewing his earlier decision which has been held not to be permissible. Reopening notice quashed - Decided in favour of assesse.
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2015 (5) TMI 871
Reopening of assessment - absence of reasons recorded prior to the issuance of notice under Section 148 and the objections furnished by the petitioners to the Section 148 notice had not been disposed of by a separate speaking order prior to the re-assessment order - Held that:- As seen from the provisions of Section 148(2) as also the decisions of this Court in Haryana Acrylic(2008 (11) TMI 2 - DELHI HIGH COURT), and that of Baldwin Boys High School (2015 (2) TMI 806 - KARNATAKA HIGH COUR), that the reasons have to be recorded prior to the issuance of notice under Section 148. If they are not so recorded, then the notice under Section 148 and proceedings pursuant thereto are without authority of law. In the present case, it is evident that the reasons were recorded only on 18.09.2012, i.e., after the notice under Section 148 had been issued on 30.08.2012. Clearly, the statutory provisions, as explained by judicial decisions, indicate that the notice under Section 148 would be invalid and consequently all proceedings pursuant thereto would also be vitiated. Assessing Officer has to pass a speaking order disposing of the objections “before proceeding with the assessment”. In the present case, a separate speaking order has not been passed and the objections have been dealt with, if at all, in the re-assessment order itself. On this ground also, the petitioner is liable to succeed. See GKN Driveshafts [2002 (11) TMI 7 - SUPREME Court] - Decided in favour of assesse.
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2015 (5) TMI 870
Penalty u/s 271(1)(c) - claim of deduction under Section 80-P(2)(d) - Held that:- In the case in hand the applicant submitted the revised return and on basis of that tax was recovered. True it is, at the fist instance the assessee claimed exemption as per provisions of Section 80-P(2)(d) of the Act of 1961 but immediately on knowing about its non-applicability a revised return was filed disclosing accurate income. Under Section 271(1)(c) of the Act of 1961 it is required to be seen as to whether the assessee has concealed the income or the details supplied by him in return were found incorrect, erroneous, not accurate, not according to the truth or not exact depiction of the taxable income. No such eventuality in the instant matter exists. The Commissioner of Income Tax as well as the Income Tax Appellate Tribunal after examining the entire record arrived at the conclusion that first return submitted by assessee Udaipur Central Cooperative Bank Ltd. was a bonafide error and that was immediately rectified by submitting a revised return. In this factual background we do not find any substantial question of law that may demand adjudication by us by entertaining an appeal as per provisions of Section 260-A of the Income Tax Act, 1961. - Decided in favour of assesse.
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2015 (5) TMI 869
Disallowance of warranty provision - whether ITAT was right in law in treating provision for warranty in the present case as an ascertained liability, despite failure on part of the assessee to establish historical or scientific basis of arriving at the said provision? - Held that:- The question is answered in favour of the respondent by the judgment of Commissioner of Income Tax v. Majestic Auto Ltd. [(7) TMI 568 - PUNJAB & HARYANA HIGH COURT] which was also relied upon by the Tribunal. So is the view taken in Calcutta Co. Ltd. v. CIT [1959 (5) TMI 3 - SUPREME Court] wherein held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. Also see Rotork Controls India P. Ltd. v. Commissioner of Income Tax [ 2009 (5) TMI 16 - SUPREME COURT OF INDIA] 314 ITR 62 (SC)- Decided in favour of assesse.
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2015 (5) TMI 868
Arrears of income tax - Attachment of accounts and money in these accounts was appropriated towards arrears of income tax - Whether the civil suit filed by the plaintiff/respondent was not barred under Section 293 of the Income Tax Act? - Held that:- A perusal of Section 293 of the Income Tax Act reveals that no suit shall be brought in any Civil Court to set aside or modify any proceeding taken or order made under the Income Tax Act thereby leaving no ambiguity that a Civil Court is prohibited from entertaining a suit to set aside or modify any order or proceedings initiated under the Income Tax Act. An exception, would obviously be available where the order passed or proceedings initiated are vitiated by fraud and then also if the fraudulent act is attributed to an officer exercising power under the Income Tax Act. The plaintiff/respondent No.1 does not allege any fraud by or at the behest of the Income Tax Department. The courts below have held that the fraud was perpetuated by M/s Janta Janta Scheme (Regd.) but have not returned a finding of fraud against the department. The plaintiff/respondent No.1 was competent to file a suit for recovery against M/s Janta Janta Scheme (Regd.) but in absence of any allegation of fraud against the department, could not maintain a suit against the Income Tax Department. The substantial question of law is consequently answered in favour of the appellant by holding that in the facts and circumstances of the present case, the jurisdiction of Civil Courts, to entertain the suit, against the Income Tax Department, was barred by Section 293 of the Income Tax Act.
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2015 (5) TMI 867
Amortization of premium paid on investments under "held to maturity category" - ITAT holding that the same is revenue expenditure in nature - held that:- The identical question came to be considered by in the case of Rajkot Dist.Co-op. Bank Ltd. [2014 (3) TMI 110 - GUJARAT HIGH COURT] and considering the paragraph (vii) of the CBDT Circular No.17 of 2008, it is held that the assessee is entitled to the amortization of security premium, as claimed. - Decided in favour of the assessee
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2015 (5) TMI 866
10% disallowance of the expenditure on doctors - CIT(A) deleted the addition as confirmed by ITAT - Held that:- The Tribunal has agreed with the detailed reasoning given by the CIT (Appeals) for deleting the disallowance. Upon a consideration of the materials on the record, we do not find the said reasoning as unacceptable. - Decided against revenue. Delayed payment of employer’s contribution under Section 43B - Tribunal deleting the addition - Held that:- From a perusal of the order of the Tribunal, it is evident that while doing so it has relied upon a decision of the Supreme Court in the case of CIT Vs. Vinay Cements Limited [2007 (3) TMI 346 - Supreme Court of India] which decision has been reiterated in the case of Commissioner of Income Tax Vs. Alom Extrusions Ltd.: (2009 (11) TMI 27 - SUPREME COURT). - Decided against revenue.
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2015 (5) TMI 865
Revision u/s 263 - AO failed to examine the taxability of the difference between the cost of the assets and fair value of the assets transferred to BIL, shown directly credited to the ‘Reserves for Business Restructuring’ by the assessee company in its balance sheet and that the AO failed to examine as to whether the said difference was to be assessed as capital gain u/s 45 of the Act or as a business income u/s 28(iv) of the Act - capital loss on transfer of PI undertaking by the assessee to BIL for Nil consideration - Held that:- The assessee transferred telecom passive infrastructure undertaking to BIL at Nil consideration resulting in capital loss of ₹ 5739 crores. The said loss was not a tax deductible item and had been suo-motu added by the assessee in its computation of income under normal provisions. Thereafter the assessee had revalued its investment in the subsidiary company i.e. BIL from ₹ 5,00,000/- to ₹ 8218 crores and had given the corresponding credit to the Reserves for Business Restructuring, out of the said reserves an amount equal to the loss of ₹ 5739 crores had been credited to the P & L a/c. From the above entries it is clear that the assessee had claimed the loss in the P & L A/c. However, the said amount was suo-motu added in the computation of income because it was not an allowable loss. This fact was examined by the AO who framed the draft assessment order for the approval of the DRP. The AO prepared a draft assessment order u/s 144C(1) of the Act and the said draft assessment order inter alia covered the issue relating to the taxability of transfer of PI undertaking to BIL at Nil consideration. The AO referred to the notes to the accounts and computation of total income, then specifically asked the assessee about the justification of the claim of capital loss amounting to ₹ 5739 crores which is evident from page nos. 73 to 78 of the draft assessment order dated 16.11.2011, copy of which is placed at page nos. 125 to 130 of the assessee’s compilation. From the above noted facts, it therefore, appears that the issue on the basis of which assessment order was considered by the ld. CIT as erroneous and prejudicial to the interest of the Revenue was examined by the AO in detail and it was directed by the DRP that the addition was not to be made after proper verification. However, the AO arbitrarily made the addition. On the appeal of the assessee, the said addition was directed to be deleted by the ITAT vide its order dated 11.03.2014. We, therefore, do not see merit in this observation of the ld. CIT that the assessment order dated 30.10.2012 appeared to be erroneous and prejudicial to the interest of the Revenue because the AO failed to examine the taxability of ₹ 5739 crores. The assessee passed the adjustment entries for a sum of ₹ 5739 crores in its books of account which had no effect on the profit/income of the assessee, therefore, the ld. CIT was not justified in holding that the AO had not examined the issue relating to the loss on account of transfer of passive telecom infrastructure to the subsidiary company. Therefore, it cannot be said that the assessment order dated 30.10.2012 was erroneous and prejudicial to the interest of the Revenue. As regards to the adjustment entry for revaluation of investment in subsidiary company i.e. BIL the amount of ₹ 5739 crores transferred from Business Restructuring Reserves of ₹ 8218 crores was not a taxable item, the obvious corollary would be that the balance amount of ₹ 2479 crores (Rs. 8218 crores – ₹ 5739 crores) remaining in the said reserve account after the aforesaid transfer was non-taxable. The same finding had been given by the ITAT vide aforesaid order dated 11.03.2014. Therefore, the ld. CIT was not justified in holding that the order passed by the AO was erroneous as well as prejudicial to the interest of the Revenue particularly when the ld. CIT himself failed to arrive at a definite conclusion and to form an opinion regarding the tax implication of the impugned transaction. In the present case, the ld. CIT on the one hand, stated that the transfer of telecom passive infrastructure undertaking at Nil consideration resulted in a capital gain of ₹ 2479 crores, on the other hand, the same transaction was alternatively alleged to have resulted in a business income of ₹ 2479 crores u/s 28(iv) of the Act. Moreover, the ld. CIT directed the AO to re-examine and verify the issue, however, he himself failed to arrive at a definite conclusion. Therefore, we are of the view that the ld. CIT without arriving at a definite conclusion was not justified in holding the assessment order dated 30.10.2012 as erroneous and prejudicial to the interest of the Revenue. Action of the ld. CIT was impermissible u/s 263 of the Act particularly when he directed the AO to re-examine the issue and proposed to tax ₹ 2479 crores either under section 45 or section 28(iv) of the Act. As regard expenditure incurred by the assessee towards amount paid to BIL for usage of passive telecom infrastructure ld. CIT directed the AO to re-examine the allowability of expenditure claimed by the assessee but he had not stated as to how and in what manner the expenses claimed by the assessee were impermissible, therefore, the action of the ld. CIT was not justified. As in the former part of this order that the AO in the original assessment proceedings had accepted the claim of the assessee after proper examination and verification of the claim and the ld. CIT had not given any finding as to how and in what manner the order of the AO on this issue was erroneous and prejudicial to the interest of the Revenue. He simply directed the AO to make further verification and examination for allowing the claim which the AO had already done, therefore, the order of the ld. CIT u/s 263 of the Act deserves to be set aside on this issue. This revision u/s 263 set aside - Decided in favour of assesse.
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2015 (5) TMI 864
TDS u/s 194I - Premium for acquiring leasehold rights for the leased plot - whether falls within the purview of sub clause (i) of explanation to sec. 194I which specifies the meaning of the term ‘rent’? - whether payment of premium was for acquisition of leasehold rights or for use of land? - Held that:- Commissioner of Income Tax(A) has also dealt with other cases pertaining to the land leased by MMRDA in the same or adjoining area and has held that the impugned deposit of lease premium does not constitute advance rent but it is a lease premium for acquiring land with right to construct a commercial building although with certain restrictions, but it is a capital expenditure not falling within the ambit of section 194- 1 of the Act. We also observe that the payment of lease premium was not to be made on periodical basis but it was one time payment to acquire the land with right to construct a commercial complex thereon and the lease premium was paid to MMRDA in four instalments, therefore, we are unable to see any perversity, infirmity or any other valid reason to interfere with the findings of the Commissioner of Income Tax(A). See CIT vs Vegetable products [1973 (1) TMI 1 - SUPREME Court]- Decided in favour of the assessee . In the case of ITO vs Indian Newspaper Society (2013 (9) TMI 158 - ITAT DELHI) held that in case the lease premium paid by the assessee is held to be capital in nature and the assessee is not liable to deduct TDS on payment of lease premium to MMRDA. The issue is therefore decided against the revenue. As regards the lease deed contained restrictive clauses therefore the payment of the assessee is in the nature of rent. A bare perusal of the clauses referred to by the revenue shows that they are only regulatory in nature for the uniform development of the area of land leased out to the assessee. Regulatory clauses are also present in the cases of development of freehold land owned by a person. Such regulatory clauses cannot convert the lease premium into tenancy as per section 194 I of the Act. Accordingly the issue is decided against the revenue.
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2015 (5) TMI 863
Revision u/s 263 - DIT(E) erred in holding that Receipts of appellant from Test Laboratory Services and Consultancy Services do not fall within the ambit of Section 2(15) of the Income Tax Act - appellant is not eligible for claiming exemption u/s 11 on income derived from the above receipts - Held that:- Assessing Officer raised query about the revenues received from test laboratory charges and consultancy charges and the assessee placed required details and explanation before the AO in this regard and this fact was also noted by the CIT(A) in paragraph 4.4 of the impugned order. We are unable to approve the observations of the CIT that the AO did not examine the issue of taxability of revenue from test laboratory and consultancy charges in the light of proviso to section 2 (15) of the Act. We may also point out that the AO has considered this issue in paragraph no. 2 and 3 of the assessment order and conclusion of the AO cannot be held as erroneous merely because the AO has not decided the issue in so many words as per expectation of the Ld. CIT. Thus the CIT was not justified in holding that the view taken by the AO was granting exemption u/s 11 of the act was not inaccordance with law and was unsustainable. Per contra, from bare reading of the assessment order, it is vivid that the assessing officer made reasonable inquiry on the issue of test laboratory charges and consultancy charges and the AO took a plausible and reasonable view that the revenue earn from these activities cannot be held as income with the main object to earn profits. We also clearly note that the activities of laboratory testing and consultancy was in furtherance of main and charitable object of the assessee association it cannot be termed as activities with the main object of profit earning motive. - Decided in favour of assesse.
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2015 (5) TMI 862
Benefit of Section 11 - whether Registration U/S 12A does not automatically guarantee exemption from income tax U/S 11 of the Act? - whether registration has been granted u/s. 12A of the I.T. Act, AO cannot override exemption while passing the assessment order? - Held that:- The impugned order passed by the Ld. CIT(A) is contrary to the law and facts and on the file by holding that once registration has been granted u/s. 12A of the I.T. Act, AO cannot override exemption while passing the assessment order. We have discussed in detail assessee-trust u/s 12AA of the Act as has been granted in the present appeal, then it will not be precluded to the AO to examine in details the every object of the society and to give finding in the assessment order as to whether the assessee has complied with the requirement of section 11 of the Act or not as to when the assessee is seeking exemption u/s. 11 of the I.T. Act. The registration granted u/s. 12AA of the Act to the assessee should not be obstacle in the way of AO, at the time when the assessment proceedings are to be taken and to decide as to whether the assessee is entitled for the benefit of section 11 and 12 of the I.T. Act as the case may be. After examining the Income and Expenditure Statement of the assessee for the asstt. year in dispute, we are of the view that the assessee has not incurred any expenditure for charitable purpose, as per their aims and objects. Therefore, the activities of the assessee is not charitable in nature and is commercial in nature. In view of the aims and objects of the assessee-society and the activities done by the assessee, we are of the view that the printing and stationery of the books fall under the general public utility limb of definition u/s. 2(15) of the I.T. Act, 1961 and not an education, because the activities of the society is not pertaining to systematic instructions school or training. After going through the orders passed by the Revenue Authorities as well as the documentary evidence filed by the assessee in the shape of Paper Book, we are of the considered view that assessee has not proved that activities done by the assessee for the asstt. years in dispute is charitable in nature, as per the provisions of section 2(15) of the I.T. Act. We find that the Ld. First Appellate Authority has passed the impugned order and granted the exemption u/s. 11 and 12 of the I.T., Act to the assessee, which is contrary to the law and facts on the file, therefore, the order is not sustainable in the eyes of law, hence, we cancel the impugned orders by allowing all the appeals filed by the Revenue. - Decided against assesse.
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2015 (5) TMI 861
Disallowance of Community Development Expenses - Held that:- It is not proper to disallow the entire amount on the basis of non-availability of few vouchers even though assessee has provided evidence by way of ledger accounts and payment details. AO does not have any right to disallow the amount stating that business necessity was also not proved beyond doubt. This issue was also decided by the DRP, so AO cannot again come to the same point which was held in favour of assessee. In view of this, we in the interest of justice, restore the issue to the file of AO to examine the vouchers only along with other Books of Accounts and other details to verify whether the expenditure was spent for the purpose of 'corporate social responsibility' of assessee-company which was allowed as a business expenditure u/s.37(1) by the DRP itself - Decided in favour of assesse for statistical purposes. Disallowance is 'giveaways' - Held that:- If we pursue the orders, it is very clear that expenditure was incurred for purchase of gifts to advocates marriages, purchase of coolers gifted to Joint Director (Mines), purchase of gifts to M.V.Mysoora Reddy's son's marriage function, purchase of silver plate gifted to Inspector of Factories, purchase of gifts to Railway employees, purchase of gift for ESI official daughter's marriage, purchase of gifts to other Govt. employees etc. Except the purchase of gold coins from Corporation Bank, Bangalore on 16-02-2008 for ₹ 3,85,166/- vide Invoice No.120 for which no details were furnished, rest of the expenditure has same identity etc. Since the business necessity was already decided by the DRP, AO's duty is only to examine the vouchers. In our opinion, except the amount of ₹ 3,85,166/- for which details were not available, rest of the expenditure cannot be disallowed on the reasons stated by AO. We therefore, direct the AO to allow the expenditure, except the amount of ₹ 3,85,166/ - Decided partly in favour of assesse. Disallowance of Contribution to Zuari School - Held that:- We were surprised about the reasoning given by the AO. He was directed by the DRP only to examine the necessary vouchers, AO should not question the wisdom of the DRP in allowing the expenditure u/s.37(1), subject to verification of the availability of vouchers. In our opinion, AO exceeded his jurisdiction in examining the MOU itself. Not only that, assessee also made contributions to another school at Sitapuram. This was being contributed earlier by SVCL which was later merged with assesseecompany. In both the places of Yerraguntla and Sitapuram, the school is being run mainly for the benefit of employees. Since, the DRP already decided to allow the expenditure u/s.37(1) and assessee furnished the vouchers, the reasons assigned by AO to disallow the expenditure cannot be accepted. - Decided in favour of assesse. Transfer pricing adjustment - rejection of TNMM as most appropriate method - Held that:- As far as the royalty payment on sales is concerned, as rightly pointed out by the Ld.Counsel, there are no comparable companies which are offering similar services. The TPO's comparison on transactions of assessee subsidiary company much prior to the year under consideration cannot be justified. Therefore, on that basis itself, the comparison cannot be considered as an internal CUP. Moreover, the need for not charging royalty from SVCL was also explained as the subsidiary company was a sick company and in the process of reviving the company, assessee has not charged any royalty to its subsidiary company. Therefore, on FAR analysis, SVSL's past record with that of present transactions of assessee-company is not correct. Then, coming to external comparables, we were surprised to note that the TPO considered the technical fee payments without analyzing the nature of the payments. In some cases, it is royalty for acquiring the lime stone from Govt., which is not a 'royalty' for getting the technology from foreign AE. There is foreign exchange expenditure also considered as 'technical know-how fee'. A detailed objections of the assessee were not even considered or discussed either by the TPO or by the DRP. Therefore, on the basis of an external CUP ALP of 0.91% itself is not correct. Therefore, the entire exercise undertaken by the TPO on this issue is erroneous and cannot be justified. Transfer of economic value of Zuari trade mark to Italcementi Group trade mark - Under the guise of TPO provisions, the TPO cannot determine the ALP at NIL as held by the Hon'ble Delhi High Court in the case of CIT Vs. EKL Applicances Ltd., (2012 (4) TMI 346 - DELHI HIGH COURT ). Therefore, rejecting the entire payment without there being any analysis on the CUP method cannot be accepted. In the guise of analyzing the transactions in the CUP method, the TPO has not brought any evidence on record to reject the 1% payment made to Italcementi Group. Moreover, while determining the price at NIL on the issue, the TPO surprisingly holds that assessee has transferred its 'Zuari Brand' to 'Italcementi Group'. We are unable to understand this logic. Italcementi Group never obtained, acquired or used Zuari Brand anywhere in the world, so that this cannot be considered for Transfer Pricing analysis. It is the Italcementi Group brand which is used by assessee-company. The TPO's analysis of AMP expenses are also not correct. The orders of the TPO/DRP on the TP issues are therefore set aside and the entire issue on TP analysis is restored to the file of AO for fresh consideration. - Decided in favour of assesse for statistical purposes. Allowability of depreciation of goodwill - additional ground raised - Held that:- As rightly held by the Hon’ble Supreme Court in the case of S.A. Builders Ltd., [2006 (12) TMI 76 - SUPREME COURT OF INDIA], additional ground cannot be considered, in the absence of any facts on record.In view of this, since the issue did not arise in the year under consideration and the facts pertaining to the quantification of the claim are not on record, we cannot entertain the additional ground, just because law on this was settled on legal principles. If at all assessee's claim to depreciation was allowed in AY.2007-08, then, assessee can claim consequential depreciation in this assessment year, before the AO, the additional ground is accordingly rejected. - Decided against assesse.
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2015 (5) TMI 860
Revision u/s 263 - assessee has made only provision for doubtful debt and has not made a write off - Held that:- The details called for by the Assessing Officer were furnished by the assessee and such details were accepted by the Assessing Officer and in such circumstances, it cannot be said that there is a lack of enquiry. There was an enquiry, though it is inadequate and in such circumstances, in view of the above decision of CIT Vs. Development Bank Ltd. (2010 (2) TMI 161 - BOMBAY HIGH COURT) the Commissioner of Income Tax lacks jurisdiction under section 263 of the Act to revise the assessment order. The Hon’ble High Court in CIT Vs. U.P.Rajkiya Nirman Nigam Ltd [2013 (7) TMI 176 - ALLAHABAD HIGH COURT] held that where books are not closed and not signed by the Board of Directors and not adopted by the shareholders as per the Companies Act, it is legally permissible to make adjustments before they are finally adopted. Hence, in the case of the assessee when the books are closed and adopted by the Board of Directors and shareholders on 18.08.2009 by which time the entries were passed writing off the irrecoverable claims to the profit and loss account and party accounts. Thus, even on merits, the claims have to be allowed in view of the above Hon’ble Allahabad High Court decision. - Decided in favour of assesse.
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2015 (5) TMI 859
Withdrawal of registration u/s. 12A - legal consequence/s of the applicability of proviso to section 2(15) on the registration of an entity as a charitable institution - Held that:- The language of proviso to section 2(15) extends to any activity that may be in the nature of trade, commerce or business - all terms of wide amplitude, or any activity of rendering any services in relation to the same. We, accordingly, have no hesitation in holding that the assessee’s activities are covered by the proviso to section 2(15); the gross receipt for the current year exceeding the minimum threshold limit which exceeds the application of the first proviso. How to proceed in the matter to decide the present appeal, i.e., given our admission of a mistake apparent from record - the appropriate course under the circumstances, even as indicated during the hearing in the instant proceedings - Held that:- As to no objection by either party, is that the matter be referred to the hon’ble President of the Tribunal for constituting a larger bench of the tribunal to decide the highly contentious issue raised by the assessee’s Ground No.1, decided differently by different coordinate benches of this tribunal, for uniform application across the tribunal, of course after hearing the parties. The larger bench of the tribunal, in the case the reference made hereby is accepted by the hon’ble President, shall, apart from the other arguments and case law as may be canvassed before it by the parties, consider the same. We support our decision for the reference aforesaid, apart from the clear provision of section 255(4) of the Act, on the settled law on precedence as explained by several celebrated decisions in the higher courts of law, as for example in the case of CIT v. B.R. Constructions [1992 (6) TMI 13 - ANDHRA PRADESH High Court]. The matter is accordingly referred to the Hon’ble President for constituting a larger bench to decide the assessee’s Ground I. We decide accordingly.
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2015 (5) TMI 858
Determination of arm's length price of international transactions - ‘Export of components and parts’ made by the assessee to its associated enterprises - CIT(A) deleted the addition on the ground that the TPO wrongly compared the tested transactions with an incomparable transaction - Held that:- In the domestic market assessee was supplying carburettors and ASVs to OEMs such as Bajaj Auto and Hero Honda who used these products in the production of vehicles that they manufactured. In contrast, the associated enterprises to whom the components and parts were exported were essentially manufacturers of carburettors, who used the products exported by the assessee for manufacture of carburettors which in turn they sold to the OEMs. This difference was brought out by the assessee to establish that there were differences in functions performed and risks assumed with regard to export of components/parts and the sale of carburettors/ASVs in the domestic market. The CIT(A) has appreciated the aforesaid differences and in our considered opinion, there is no cogent material or evidence before us to dissuade us from affirming the stand of the CIT(A). The CIT(A) has categorically noted that assessee had exported components and parts whose profit margins should be compared with the margins derived from sale of parts/components and not sale of manufactured products. Going further, the CIT(A) held that volume of domestic sale of components/parts was quite insignificant to constitute a valid comparable with the export transactions. For all the aforesaid reasons, CIT(A) has differed with the approach of the TPO in benchmarking the impugned transaction of export of components and parts with the profit margin of domestic sales which primarily consist of manufactured products i.e. carburettors. Thus no reason to interfere with the ultimate conclusion of the CIT(A) to delete the addition on the ground that the TPO wrongly compared the tested transactions with an incomparable transaction. Disallowance of engineering services fee - Held that:- No fault can be found in the manner in which the CIT(A) has come to conclude that the expenditure in question is to be allowed as a revenue expenditure. It is also not disputed before us that similar expenditure in assessment year 2006-07 stands allowed as a revenue expenditure by the Assessing Officer after due verification. The CIT(A) also noted that the engineering services provided by the parent company in this year related to day to day running of business in contrast to the earlier assessment year of 2004-05 wherein it related to the pre-installation stage of the imported machinery. Having regard to the facts and circumstances of the case and the findings of the CIT(A), we find no reasons to interfere with his decision of allowing deduction for ₹ 1,21,87,328/- representing engineering services fee as a revenue expenditure. The Revenue fails on this aspect. - Decided in favour of assesse.
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2015 (5) TMI 857
Condonation of delay - Disallowance made u/s40(a)(ia) r.w.s 194C - Charging of interest u/s. 201(1)/(1A) - Held that:- In the instant case the assessee society is registered under the Karnataka Co-operative Societies Act 1959. The assessee society’s main object is to manufacture of sugars by procuring cane from members and non-members. Thus, the society runs on co-operative basis. The assessee could not obtain the legal advice. Moreover, the assessee’s sugar factory was running in loss for so many years. Therefore, the assessee could not file appeal in time before the ld.CIT(A). The assessee has obtained legal opinion from an ex-principal, G.K.Law College, Hubli. The assessee has filed the appeal. The assessee has understood the legal position. We are of the view that the assessee had reasonable cause in not filing the appeal in time before the ld.CIT(A). The appeal may not be decided on technical ground, but it must be decided on merit in the interest of public. We find that the assessee society has huge money of the public. Therefore, in the interest of justice and fair play, we condone the aforesaid delay in filing all the appeals for all the assessment years under consideration and restore the matter to the file of the ld.CIT(A) to decide the appeal on merits after giving the assessee adequate opportunity of hearing. - Decided in favour of assesse for statistical purpose.
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2015 (5) TMI 856
Eligibility of deduction u/s 10B - whether the three units of the assessee company namely NIITITES, NIIT-KTWO and NIIT-Mumbai are separate 100% EOUs of the assessee company ? - Held that:- Each of the three undertakings had been separately and independently granted registration by Software Technology Park of India, Pune (STPI) for claiming exemption u/s 10B of the act as newly set up 100% EOU, which is evident from the copies of STPI approval and extension letters thereto. Those three units were also granted separate licence by the Customs Authorities. Those EOU’s were situated at separate location having independent buildings on separate addresses, their Plant & Machinery and fixed assets were also separate, each of the EOU furnished separate Audit Report in Form No. 56G. Therefore, it cannot be said that the three EOU’s of the assessee company were formed after splitting off of the existing unit or reconstructing the old or non-eligible unit. In the present case, although it is an admitted fact that these units were not having separate books of accounts but ERP software accounting system was implemented by each of them and transactions of each unit were separately coded all the transaction were identifiable as in the case of separate books. Therefore, the ld. CIT(A) was fully justified in directing the AO to compute the deduction u/s 10B of the Act in respect of each unit separately. - Decided in favour of assesse. Allowability of deduction u/s 10B - at the source itself and not after the computation of Gross Total Income - CIT(Appeals) allowing that deduction u/s 10B after deducting unabsorbed depreciation from the profit of business - Held that:- In the present case, it appears that the assessee was not having any unabsorbed depreciation relating to the eligible Export Oriented Units (EOU’s). Therefore, adjustment in the eligible profits of the EOU was not to be made on account of brought forward unabsorbed depreciation. The said unabsorbed depreciation was adjusted by the assessee against certain income from other sources and not against the eligible profits of the 100% EOU. - Decided against revenue. Admission of the additional evidence - Held that:- AO vide notice u/s 142(1) of the Act called the details relating to claim u/s 10B of the Act which the assessee furnished. The ld. CIT(A) found from the record that the assessee replied to the showcause regarding the allowability of deduction u/s 10B of the Act vide submissions dated 30.12.2009. The ld. CIT(A) categorically stated that there was no specific show-cause given to the assessee as to why all the units of the assessee company be not treated as a single unit for the purpose of allowance of deduction u/s 10B of the Act, therefore, specific opportunity was not granted to the assessee for clarifying the issue as to why all the units of the assessee may not be considered as one unit for the purpose of section 10B of the Act and that the documents furnished by the assessee before him goes to the route of the aforesaid issue relating to deduction u/s 10B of the Act. In the present case, the ld. CIT(A) admitted those evidences after providing due and reasonable opportunity to the AO who furnished his remand report. Therefore, we do not see any merit in this ground of the departmental appeal - Decided against revenue.
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2015 (5) TMI 855
Rectification of mistake - Issue of guarantee by DSM Finance B.V.- Held that:- It is respectfully submitted that the appellant enjoyed significant savings interest cost due to the guarantee provided by the associated enterprise against the LC facility availed by the appellant. The detailed economic analysis undertaken by the appellant for benchmarking the guarantee provided by the associated enterprise is provided as Annexure 4A guarantee fee charged by DSM Netherlands to DSM India at 4% for the overall arrangement, shall be considered to be at arm's length as required under Indian Regulations.In view of the aforesaid, it is respectfully submitted that the above documents now placed on record by the appellant pursuant to the query raised by the Hon'ble Tribunal may kindly be taken into consideration while adjudicating the appeal of the assessee. Corporate Service Charge - Held that:- The assessee had started receiving some financial services also from the holding company which explained the increase in total payments on account of corporate services. The assessee had tried to justify the payment on account of such financial services but when again it was confronted that if assessee had saved ₹ 100/- and if he pays the entire amount of ₹ 100/- to the holding company and in that case there would be no savings to the assessee. In response to this query, the Ld. Counsel on behalf of the assessee had admitted that there is international practice to pass on 50% of the amount of such financial savings on account of financial services and balance 50% was to be retained by the recipients of the services. This was found to be logical because benefit was being shared on 50 - 50 basis. Therefore, assessee was asked to give amount of total benefit on account of financial services.On the basis of above admission the Bench held that fee paid for other corporate services could not have increased so much and therefore, it was fair and just that that normal fee paid for corporate services should not be disallowed but in view of the increase in the amount the benefits obtained by the assessee on account of financial services have to be shared on the basis of 50-50. Thus no error in the order of Tribunal and therefore, no rectification can be made.
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2015 (5) TMI 854
Suppression of income - sale price shown in the sale deed of the private respondent at ₹ 800/- per square feet is deliberately undervalued - Tribunal deleted the addition - Held that:- Considering appellant submition that the statement of the agreement-holder clearly discloses that the agreement was made on behalf of the respondent company. The agreement also discloses a payment of advance amount of ₹ 4-crore, which, according to the agreement-holder, was paid by the respondent company. The respondent company issued cheques towards advance payment to the vendor and virtually purchased the property. Therefore there appears to be no reasonable nexus and substantial evidence available to show that the agreement made by Mr Modi with the erstwhile owner was in fact for the benefit of the company and that the Tribunal did not appreciate the evidence in proper perspective, thus erred in allowing the appeal. - Decided against revenue. The respondent company has shown the sale price in the account books at ₹ 9-crore odd. The department has not found any contra material to controvert the entries in the account books of the respondent company.Tribunal was justified and correct in law in holding that even if the addition was justified, it should had been made under Section 69B of the Income Tax Act, 1961 and not under section 69 of the Income Tax Act, 1961. Department has failed to discharge the burden under Section 69B of the Income Tax Act, 1961 of proving that the assessee made additional investment. - Decided against revenue. Tribunal was justified and correct in law in holding that the provision of Section 114(g) of the Indian Evidence Act, 1872 is attracted in the case - Decided against revenue.
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2015 (5) TMI 853
Registration as a Charitable Trust under Section 12A cancelled - whether running of Bar/Restaurant renting out of rooms to its members/guests and letting out choultry on commercial basis are not charitable activities ? - Held that:- Registration granted under Section 12A of the Act can be cancelled under two circumstances i.e., (i) If the activities of such trust or institution are not genuine and (ii) The activities of trust or institution not being carried out in accordance with the object of the trust or institution. It is not in dispute that the Director of Income Tax (Exemption) has not recorded any such finding about the violation of the two conditions stated above. The Tribunal while deciding the matter has rightly recorded a finding that a perusal of impugned order shows that Director of Income Tax (Exemption) has not arrived at any such finding. The fact that the receipts from commercial activities are more compared to the overall receipts of the charitable organization can neither lead to the conclusion that the activities of the trust or institution are not genuine nor it can be said that the activities of the trust or institution are not being carried out in accordance with the objects of the trust or institution and therefore, the two conditions stipulated under the provisions of sub-section (3) of Section 12AA of the Act, which empowers the authority to cancel the registration, do not exist in the present case. - Decided in favour of assesse.
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2015 (5) TMI 852
Transfer pricing adjustment - addition on Service fee received - Held that:- The assessee simply rendered agency services under this segment by co-ordinating between customers and its AEs. By no standard, the assessee can be said to have dealt with the goods of its AEs as an absolute owner. Once position is such, we fail to comprehend as to how financial results of the commission segment can be adjusted for making a comparison with trading segment. The ld. AR has drawn our attention towards the Tribunal orders passed in assessee’s own case for the earlier years reversing similar stand of the Revenue authorities on the international transaction of receipt of Service fee. As such, we set aside the impugned order on this score and remit the matter to the TPO/AO for a fresh determination of ALP of the international transaction of receipt of 'Service fee’ as per law after allowing a reasonable opportunity of being heard to the assessee. In doing so, the assessee will initially propose comparable instances having undertaken activity similar to it under this segment. Then it will be for the TPO to decide on their comparability or otherwise and determine the ALP of this transaction as per law. We further add that in doing so, the TPO will consider the figures of the comparables for the current year alone and not the multiple-year data as has been held by the Hon’ble jurisdictional High Court in ChrysCapital Investment Advisors (India) P. Ltd. VS. DCIT [2015 (4) TMI 949 - DELHI HIGH COURT] . Disallowance under section 40(a)(i) - TDS u/s 195 - Held that:- the assessee is seeking the benefit of article 24 qua the disallowance u/s 40(a)(i) and not in respect of any transfer pricing adjustment made by bringing transactions between two AEs at arm’s length price. Disallowance u/s 40(a)(i) is an independent component of the computation of total income which is distinct from any transfer pricing adjustment. Article 24 read with Article 9 albeit prohibits the deletion of enhancement of income due to the making of transactions at ALP, but permits the deletion of enhancement of income due to disallowance u/s 40(a)(i) of the Act. Be that as it may, we find that the TPO has not proposed any transfer pricing adjustment in respect of `Trading segment’ of the assessee under which the purchases in question were made. The addition on account of TP adjustment is in respect of `Service fee received’, which was earned by the assessee without making purchases of the goods from its AEs. As disallowance u/s 40(a)(i) is in respect of purchases made from the AEs, which is in no manner connected with the Commission segment, we hold that the assessee is entitled to the benefit provided by article 24 of the DTAA and cannot be visited with the disallowance u/s 40(a)(i) of the Act. The foregoing discussion divulges that there existed no liability on the assessee to deduct tax at source from the payments made by it to the listed seven foreign AEs, either because of non-chargeability of income under the Act from sale of such goods to the assessee or because of the application of non-discrimination clause. The natural corollary which follows is that the provision of section 195 cannot apply and, resultantly, there can be no disallowance u/s 40(a)(i) of the Act. We, therefore, order for the deletion of this disallowance - Decided in favour of assesse. Disallowance u/s 14A - Held that:- It as an admitted position that the assessee did not earn any exempt income during the year. The Hon’ble jurisdictional High Court in CIT vs. Holcim India Pvt. Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT) has held that no disallowance u/s 14A can be made in the absence of any exempt income. In Joint Investments Pvt. Ltd. Vs. CIT (2015 (3) TMI 155 - DELHI HIGH COURT) it has been held that disallowance u/s 14A cannot exceed the exempt income. Since the assessee admittedly did not earn any exempt income during the relevant year, respectfully following the precedents, we hold that no disallowance u/s 14A can be made - Decided in favour of assessee.
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2015 (5) TMI 851
Disallowance of exemption claimed u/s 10B - CIT(A) deleted the additions - Held that:- The facts of the present case are similar to the facts in the case of ITO Vs Efextra Esolutions Pvt. Ltd., New Delhi (2012 (8) TMI 895 - ITAT DELHI), which the ld. CIT(A) has followed while allowing the claim of the assessee. The assessee fulfilled all the conditions for 100% tax exemption u/s 10B of the Act which was earlier granted u/s 143(1) of the Act. The conditions laid down for exemption u/s 10A of the Act are similar to the exemption u/s 10B of the Act. Therefore, the AO should have allowed the claim of the assessee u/s 10A of the Act which was earlier claimed under a bonafide belief u/s 10B of the Act. We, therefore, do not see any valid ground to interfere with the findings of the ld. CIT(A) - Decided in favour of assesse.
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2015 (5) TMI 850
Validity of transfer pricing adjustment - whether income of the assessee holding that the assessee s calculation of 4.84% of (profit before tax)/total cost is window dressed? - AO/DRP international transaction entered into by the assessee for the purpose of job work to be purchase and sale - Held that:- In substance, the assessee is not the owner of the gold imported and jewellery exported and is not entitled to any profit on the gold content. The assessee does not have any right to dispose of the gold and the AE remains the owner of the gold sent. The gold sent cannot have two owners. As admittedly, no consideration is passed for the value of gold, which is evident from the bank statements produced by the assessee, therefore, the aforesaid transactions cannot be termed as sale . In the present case, the value of gold imported and exported is only a pass through cost and cannot be part of the operating cost of the assessee. The Ld. TPO and DRP erred in including the cost of gold in the cost base of the assessee, while computing the arm s length price of the international transaction. Lastly, the assessee also does not separately invoice the jewellery items exported to AE. Thus we are of the view that the assessee is a job worker and not a manufacturer and the Ld. TPO and DRP erred in including the cost of gold into the operating cost of the assesse - Decided in favour of assesse. Most Appropriate Method (MAM) for calculating the arm s length price of the international transaction entered into by the assesse - held that:- As we have held that the assessee has correctly applied CUP method to benchmark its transaction, TNMM being an indirect method cannot be applied in the case of the assessee. TNMM method can only be applied when direct and traditional methods are incapable of determining the arm s length price of the transaction. TNMM method is a profit based method which might result in possibility of vitiation of results by number of factors which are not relevant to the determination of prices at which international transactions are entered into by the associated enterprises. It would thus follow that in a situation in which the assessee has followed one of the standard methods of determining ALP, such a method cannot be discarded in preference over transactional profit methods unless the revenue authorities are able to demonstrate the fallacies in application of standard methods. - Decided in favour of assesse. Furthermore, the method adopted by the Ld. TPO is ex facie incorrect as all the comparables relied upon by the Ld. TPO are companies which are engaged in retail business who sell directly to the consumer. On the other hand, the assessee is engaged in a business to business model whose profitability cannot be compared to companies which are in business to customer model. Moreover, the profitability of the comparables relied upon by the Ld. TPO is calculated after including the cost of gold into the operating base of the company as the companies are in retail segment. The comparison by the Ld. TPO to one Manohar Lal Saraf Jewellers who is charging 8% making charges cannot be applied to the case of the assessee for the aforesaid reasons. Thus in view of our findings above we delete the first addition of ₹ 9,50,31,469/- made on account of applicability of MAM. - Decided in favour of assesse. Addition is with respect to the charges of facility, freight and insurance made by the assesse - Held that:- A perusal of these policies clearly shows that in case of any loss, the same would be recovered from the insurance company and paid to the AE. The assessee is only reimbursed by its AE of the freight and insurance charges at the rate of $ 350 consignment. These three insurance polices have been ignored by the Ld. TPO and DRP. We are in agreement with the contention of the assessee that reimbursements can never come within the scope of charging Section 4 of the Act and therefore income cannot be deemed under the transfer pricing provisions under Chapter X of the Act as held by Hon ble Bombay High Court in Vodafone Vs. UOI [2014 (10) TMI 278 - BOMBAY HIGH COURT]. We thus delete the second addition of ₹ 176,66,900/- on account of provision of facility, freight and insurance. - Decided in favour of assesse.
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2015 (5) TMI 849
Addition on undisclosed GP rate - suppressed sales assumed on the basis of a diary seized from third party - CIT(A) restricted part addition - whether the documents seized during the course of search and the statements recorded during search and post-search was sufficient to draw an inference about undisclosed sales? - Held that:- The entire sales as made by the assessee during the year aggregate to ₹ 699.73 crores and sale of manufactured goods is of ₹ 257.51 crores and the quantity-wise details furnished by the assessee have been accepted as such. Not a single party has been examined before drawing adverse inference regarding undisclosed sales made by the assessee. It is also worth noting that the sale is always made between the two parties and once there is no evidence either seized or gathered from the two parties then it would not only be highly improper but also unjust and arbitrary to assume undisclosed sales between the said parties. We are thus of the view that the seized diary during the course of search and the statements of Shri Salek Chand Garg recorded during the course of search and post-search was not sufficient to draw an inference about the alleged undisclosed sales dehors corroborative evidence supporting the third party statements and the entries recorded in the diary found from the possession of the third party during the course of search. - Decided in favour of the assessee. Whether a profit can be estimated without rejecting books of account with this finding that on the basis of the said books of account, proper income cannot be adduced? - Held that:- It is a settled position of law that estimation of profit by applying a reasonable g.p. rate can be adopted and applied only when it is not possible for the Assessing Officer to deduce the profit of the assessee on the basis of books of accounts produced by the assessee. In such a situation, the Assessing Officer will have to afford opportunity of being heard to the assessee to meet out the defects pointed out by the Assessing Officer in the books of account and if the Assessing Officer is not satisfied with the explanation of the assessee to those defects pointed out by the Assessing Officer, then the Assessing Officer will reject the books of account by invoking the provisions of sec. 145(3) of the Act and will estimate the profit.In the present case, in view of the above finding on sub-issue No.(i), the Assessing Officer was having no reason to reject the books of account of the assessee, hence, he was not justified to jump on the second step for estimation of the profit by applying different g.p. rate than that shown by the assessee. - Decided in favour of the assessee. Whether application of g.p. rate at 10% by Assessing Officer and 5% by Learned CIT(Appeals) was reasonable to estimate the profit? - Held that:- No plausible reason has been assigned by the Assessing Officer for application of g.p. rate at 10% nor has the Learned CIT(Appeals) assigned any convincing reason for applying the g.p. rate at 5% of the turnover. The g.p. rate declared by the assessee in respect of manufacturing was 1.24%. Also keeping in mind the above findings on other sub-issues, the issue is decided in favour of the assessee. Unexplained investment in stock - CIT(A) sustained the addition to the extent of ₹ 6,62,35,000 - Held that:- The Learned CIT(Appeals) thereafter has held that variation in quantity of raw material of six items was imaginary to obtain credit facility from bank on account of accounts financial crises. He also held that there was no difference in stock on the date of search and that the stock has not been pledged with the bank but only hypothecated to bank as such stock statement given to bank cannot be a basis to assume unexplained investment in stock. In this regard, he placed reliance on several decisions. We also find that on the issue, there are several decisions in favour of the assessee as well as the Revenue. In such a situation, it is now a well settled position of the law that in absence of decision of Hon'ble jurisdictional High Court on the issue, the decision favoring the assessee will have to be followed. The finding of the Learned CIT(Appeals) on the issue following the decision in favour of the assessee thus cannot be held erroneous. The same is upheld. - Decided against revenue. As regards CIT(A) sustained the addition to the extent of ₹ 6,62,35,000 the closing stock as on 31.3.2009 in any case cannot be added as unexplained investment for the assessment year under consideration as in that case it will be amounting to unexplained investment for the assessment year 2009-10, especially when the closing stock of that assessment year was accepted. In this regard, we find support from the cited decision of Hon'ble Delhi High Court in the case of CIT vs. Om Prakash Mahajan (supra) and in the case of J.M. Wire Industries vs. CIT (supra). The addition of ₹ 6,62,35,000 sustained by the Learned CIT(Appeals) is thus not tenable. The same is directed to be deleted - Decided in favour of assesse. Undisclosed investment - assessee company had paid balance amount to the seller in cash outside the books of account by utilizing unaccounted income - held that:- provisions laid down under sec. 50C of the Act are not applicable in the case of buyer and the valuation report in absence of corroborative evidence in support cannot be the sole basis to arrive at a conclusion beyond doubt that the value shown therein was invested by the assessee to purchase the property in question. It is also an established position of law that a document is reliable or unreliable in its entirety. The Learned CIT(Appeals) was thus not justified in relying upon the valuation report only for the purpose of the value of construction raised on the property shown in the said valuation report. On the other hand, we find that the evidence filed in the shape of agreement, sale deed, remittance of the accounts from the ledger as well as bank account were sufficient evidence to accept sale consideration shown in those documents. The Assessing Officer was thus not justified in making addition solely on the basis of valuation report and the Learned CIT(Appeals) was also not justified in sustaining the part addition partly on the basis of the valuation and applying the provisions of sec. 50C of the Act in the case of buyer. The addition made and sustained by the authorities below on the account of undisclosed investment in the property is thus directed to be deleted - Decided in favour of assesse.
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2015 (5) TMI 848
Revision u/s 263 - AO has omitted to disallow unpaid excise duty resulting in under assessment of tax - Held that:- The assessee explained before the CIT that there is no fresh provision made in respect of unpaid excise duty of ₹ 35.43 lacs. Even now before us, assessee drew our attention to annexure 9 of the Balance Sheet that this amount of unpaid excise duty of ₹ 35.43 lacs pertains to earlier years and no new provision is made. Ld. Counsel for the assessee now before us also filed the copy of assessment order passed in consequence to revision order u/s. 263 of the Act wherein the AO has clearly observed after verifying the records that this excise duty of ₹ 35,43,390/- was actually outstanding balance of pre-existed unpaid excise duty relevant to AY 1997-98 out of total sum of ₹ 1,04,79,687/- which was disallowed u/s. 43B of the Act. Ld. Counsel for the assessee drew our attention to page 13 of assessee’s paper book, which is copy of annexure 9 as certified by Sr. Manager, (Finance, taxation) of the assessee company and the statement showing the details in respect of sum referred to in clause (a), (c) and (d) of section 43B of the Act as required under the audit provisions. Thus unpaid excise duty pertains to earlier years and no claim for this excise duty is made, the disallowance of excise duty is not possible. The AO has taken a correct view while framing assessment and revision order passed by CIT u/s. 263 is without jurisdiction. The assessment order is neither erroneous nor prejudicial to the interest of revenue. Stock in transit - Held that:- The facts are that the assessee explained from the paper book wherein the copies of Schedule 8 (inventories) of the annual accounts for the FYs 2006-07, 2007-08 and 2008-09 along with copies of journal entries relating to ‘stores in transit’ for the respective years are filed. The assessee has also filed copies of ledger account of raw material and stores and spares at page 14 of the assessee’s paper book where copy of schedule 12 (consumption of raw material and components including stores and spares) of the annual accounts for the FY 2007-08 relevant to AY 2008-09 are filed. We find from the arguments of Ld. Counsel of the assessee that it is consistently following this practice and there is no change in practice that the transit stock is not included in the purchases consequently value thereof was not debited in the P&L Account. In term of the above and the facts of the case, we are of the view that the assessment framed by AO in considering the inventories, i.e. stores in transit was considered and allowed, the assessment order is neither erroneous nor prejudicial to the interest of revenue. The CIT while passing revision order u/s. 263 of the Act has totally erred in revising the assessment. We quash the same. Accordingly, on both the issues the order of CIT passed u/s. 263 of the Act is quashed. - Decided in favour of assesse.
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2015 (5) TMI 847
Undisclosed investment in the money lending business - CIT(A) deleted the addition - Held that:- A bare reading of the assessment order shows that the Assessing Officer accepted the computation made by the assessee with regard to the outstanding amount at ₹ 23,52,000/- as per the transaction found in the seized material. The Assessing Officer also determined the outstanding amount as per the transaction entered in the seized material at ₹ 19,10,300/-. It is not known whether the outstanding amount on the date of search was ₹ 23,52,000/- or ₹ 19,10,300/-. The CIT(Appeals) without any discussion simply deleted the addition on the basis of the so called balance sheet said to be provided by the assessee. Since the facts are not clear from the orders of the lower authorities, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer. Accordingly, the orders of the lower authorities are set aside and the issue with regard to unexplained investment in the money lending business is remitted back to the file of the Assessing Officer to examine the issue afresh in the light of the provisions of Section 158BB of the Income-tax Act, 1961 - Decided in favour of revenue for statistical purposes. Disallowance of bad debts - CIT(A) deleted the addition - Held that:- Admittedly, the assessee has not maintained any books of account. Only during the course of search operation, certain materials were found which disclosed the investment made in the money lending business. The assessee claims that the seized material found during the course of search operation referred to an entry of bad debts. However, the Revenue disputed the same. The Ld. D.R. clarified that no such reference was there in the seized material regarding bad debts. Furthermore, the details of money lent to the individuals are not available and with whom the assessee written off the loan amount as bad debts is also not available. In the absence of such details, this Tribunal is of the considered opinion that the issue has to be reconsidered by the Assessing Officer. Accordingly, the orders of the lower authorities are set aside and the issue of bad debts to the extent of ₹ 16,60,000/- needs to be re-examined by the Assessing Officer. - Decided in favour of revenue for statistical purposes. Unaccounted investment in the money lending business - CIT(A) deleted the addition - Held that:- The Revenue claims that the money lending business belongs to the assessee. However, the assessee claims that the investment was disclosed in the return filed by the assessee’s son. The details of such assessment made in the assessee’s son are not available on record. The sworn statement recorded from Shri Subramanian shows that the diary was written by his father. In fact, in response to Question No.19, he admitted that the documents are relating to Vijaya Finance and other finance of his family. He, according to the Ld. D.R., admitted that the money lending business belonged to him. In those circumstances, this Tribunal is of the considered opinion that the matter needs to be reconsidered after considering the assessment made in the hands of Shri Subramanian, the assessee’s son. Accordingly, we issue remitted back to the file of the Assessing Officer for reconsideration in the light of the material available on record - Decided in favour of revenue for statistical purposes. Undisclosed investment in the construction of house at Arantangi & building at Karaikudi - contention of the assessee before this Tribunal is that the valuation has to be made only on the State PWD rates - Held that:- We find much force in the contention of the assessee. State PWD rates have to be preferred when compared to the Central PWD rates. State PWD rates are prepared as per the local condition prevailing in the particular State. Therefore, this Tribunal is of the considered opinion that the valuation of the building has to be made only on the basis of State PWD rates. Accordingly, we set aside the orders of the lower authorities and the issue of cost of construction with regard to Aranthangi building is remitted back to the file of the Assessing Officer. - Decided in favour of assesse for statistical purposes.
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2015 (5) TMI 846
Rejection of books of accounts - AO applying the net profit rate of 1.25% - Held that:- It is an admitted fact that the AO had not pointed out any specific defect in the books of accounts maintained by the assessee in the regular course of business. It is also not brought on record that there was a difference in the sales declared by the assessee in its books of accounts vis-à-vis accepted by the Sales Tax Authority. In the present case, the AO while applying the net profit rate of 1.25% had not pointed out any specific case wherein similar net profit rate has been shown by any comparable case.We, therefore, considering the totality of the facts and are of the view that the profit declared by the assessee on the turnover of ₹ 3,99,97,585/- does not require any modification on our part. As regards to the addition on account of application of net profit rate, in the present case, it is not brought on record that the profit declared by the assessee for the year under consideration was not comparable with the profit rate declared for subsequent years which had been accepted by the ITAT. In that view of the matter we are of the view that the ld. CIT(A) rightly deleted the addition made by the AO. As regards, to the another addition of ₹ 3,10,000/- in respect of difference between the amount shown in the cash receipts issued by the assessee to M/s Krishna Store and the amount entered in assessee’s cash book it appears that the ld. CIT(A) verified from the books of accounts and the bank statement of the assessee that the transactions entered in the primary books of accounts i.e. cash book and in the bank statement was the same but those were wrongly mentioned in the receipts book. The ld. CIT(A) deleted the addition of ₹ 3,10,000/- after proper verification on the basis of verification report of ST-35 forms issued by M/s Krishna Stores giving details of the bill numbers and the amounts of respective bills which confirmed that the correct amounts involved in the two transactions were entered in the primary books of accounts i.e. cash book & ledger. We, therefore, do not see any infirmity in the order of the ld. CIT(A) on this issue. - Decided against revenue. Penalty u/s 271(1)(c) - held that:- As have upheld the order of the ld. CIT(A) in deleting the quantum addition. The said additions were the only basis for levying the penalty u/s 271(1)(c) of the Act and as the additions has been deleted, there remains no basis for levying the penalty u/s 271(1)(c) of the Act. - Decided in favour of assesse.
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2015 (5) TMI 845
Reopening of assessment - Held that:- We find that notice u/s 148 had been issued primarily on the basis of information received from Investigation Wing of department regarding accommodation entries received from M/s Garg Finvest (P) Ltd. amounting to ₹ 3,00,315/-. Therefore, it is not correct to say that no addition had been made in respect of the amounts on which notice u/s 148 had been issued. - Decided against assesse. Commission paid for obtaining the said accommodation entry - Held that:- Nothing has been brought on record to controvert the findings of ld. CIT(A) that assessee has not been able to establish the genuineness of the transactions and keeping in view the contrary stand taken by the assessee during assessment proceedings and after the details of the inquires were confronted to assessee, we find no reason to interfere with the order of lower revenue authorities on this count. - Decided against assesse. Disallowance u/s 14A by applying Rule 8D - Held that:- CIT(A) correctly did not apply Rule 8D by observing that the said Rule was applicable w.e.f. assessment year 2008-09, as laid down by the Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] and applying formula for computing disallowance u/s 14A in cases prior to AY 2008-09 where the provisions of Rule 8D of IT rules are not applicable - Decided in favour of assesse.
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2015 (5) TMI 844
Interest received from Bank deposits to the extent as income from other sources.- CIT(A) deleted the addition - Held that:- The income from interest by the assessee since is assessable separately under the head “income from other sources”, therefore, this income cannot be set off against the expenditure incurred by the assessee prior to set up. We accordingly set aside the order of the ld. CIT(Appeals) - Decided in favour of revenue. Addition of capital expenditure claimed under the head “loan syndication charges” - CIT(A) deleted the addition - Held that:- This expenditure under section 40A(2) (a) has been incurred by the assessee during the year but this expenditure has not been claimed as revenue expenditure as contended by the ld. A.R. This expenditure has been debited by the assessee under the head “work-in-progress”. The disallowance has been made by the Assessing Officer by applying the provisions of section 40A(2)(a). On perusal of section 40A(2)(a), it is apparent that this section is applicable only for restricting the claim of any expenditure, which is otherwise allowable while computing the income under the head “profit and gains of the business or profession”. Since the expenditure has not been claimed by the assessee while computing the income under the head “income from business”, therefore, no disallowance under section 40A(2)(a) can be made. The provisions of sect ion 40A(2)(a) are applicable only if the assessee has claimed deduction of the expenditure while computing the income under the head “income from business”. We noted that no such expenditure has been claimed, therefore, the disallowance under section 40A(2)(a) cannot be made - Decided against revenue. Disallowance of the interest expenses on account of term loan - CIT(A)deleted the addition - Held that:- In this case the assessee has incurred interest amounting to ₹ 86,90,220/- on the term loan from Central Bank of India. The said interest has not been claimed by the assessee as deduction while computing the income under the head “income from business”. The said interest, in fact, has been capitalized by the assessee under the head “work-in-progress”, i.e. the expenditure has been capitalized by the assessee. It is not a case where the assessee has claimed deduction under section 36(1)(iii) of the Income Tax Act while computing the income from business. Once the assessee itself has not claimed as revenue expenditure, therefore, in our opinion, no disallowance should have been made. - Decided against revenue. Disallowance of compensation paid for acquisition of land - CIT(A)deleted the addition - Held that:- . It is not a case when the land has been compulsory acquired under any law, therefore, in the absence of sect ion 194LA being applicable, no question of any deduction of TDS arises. The provisions of section 194LA are not applicable when the assessee has purchased the immovable property by an agreement or sale deed. We accordingly confirm the order of the ld. CIT(Appeals) in deleting the addition of ₹ 12,60,000/- and dismiss this ground of appeal taken by the Revenue. - Decided against revenue.
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2015 (5) TMI 843
Disallowance u/s 14A - Held that:- The contention put forth by the ld. AR that it had earned dividend income of ₹ 262907.86 lakhs without incurring any expenses does not convince us at all. The term ‘expenditure’ as per section 14A would include the expenditures that are related to investments made i.e. expenditures on administration, capital expenses, travelling expenses, operating expenses etc. It is difficult to accept that the assessee company was making investments decisions to the tune of ₹ 6,31,637 lakhs of public money without incurring a single penny out of its pocket. Such decisions are highly strategic in nature and are required to be made by highly qualified and experienced professionals. The same would also require market research and analysis. The assessee company by acquiring controlling interest in the subsidiary companies would also be required to attend board meetings and make policy decisions with regard to the aforesaid huge amount of investments made. By no stretch of imagination, it can be assumed that such activities were done without incurring any expenditure. It is pertinent to mention here that even the assessee did not rebut the findings of AO that the assessee was required to supervise and administer all the investments made. Thus in the present case the nexus between the expenditure incurred and the dividend income was established by the revenue authorities - Decided against assesse. Disallowance computed as per Rule 8D of the Rules cannot be applied u/s 115JB - Held that:- Provisions of section 14A are restricted to computation of income under normal provisions of the Act which cannot be extended to the computation of income u/s 115JB of the Act as relying upon the decisions of ITAT Delhi Bench in the case of Goetze (India)ltd vs CIT (2009 (5) TMI 615 - ITAT DELHI ). - Decided in the favour of the assesse. Expenses pertaining to foreign exchange fluctuation disallowed - Held that:- In view of the submissions made by the ld. AR the issue is restored back to the file of AO to examine as to whether the assessee has in fact booked profit on account of foreign exchange fluctuation. If that be so, the same shall be dealt with in accordance with judgement in the case of Woodward Governor India (2009 (4) TMI 4 - SUPREME COURT) wherein held market to market loss is an expenditure incurred by the assessee and thus allowable as deduction. - Decided in favour of assesse for statistical purposes only Disallowance of prior period expenses - Held that:- Assessee had coal dumps against which deposits were received by it. The assessee had earned interest income on the said deposits and certain legal disputes against the claim by the coal dealers of coal dumps are pending in the courts. The assessee feels that such interest may have to be paid back to the said claimants. It is a fact that the assessee has not accounted the prior period expenses which had been stated to have been processed during the year. It is still a contingent liability which had not yet finalised and the assessee had made a provision in apprehension to write off it as bad debts. In the circumstances and facts of the case we find no infirmity in the order of the ld. CIT(A), who has rightly disallowed the claim of assesse - Decided against assesse. Disallowance u/Rule 8D(2)(ii) and Rule 8D(2)(iii) of IT Rules - CIT(A) deleted addition - Held that:- Rule 8(2)(ii) can be invoked when the assessee had incurred expenditure by way of interest during the previous year relevant to assessment year which is not directly attributable to any particular income or receipt. The assessee had invested ₹ 6,31,637.37 Lakhs in its subsidiaries and had received the same amount from Govt. of India as subscribed share capital. It is pertinent to mention here that the assessee is a public sector undertaking of the Govt. of India and whole of the subscription of the share capital was subscribed by Govt of India till the present A.Yr. and there was no private placement in the form equity before A.Yr.2008-09. The entire share capital invested in the subsidiary companies from which exempt income in the form of dividend was earned was received by the assessee from the Govt. of India. The assessee had not raised loan or borrowed money for making investment in the subsidiaries. In the written submissions filed before the ld. CIT(A) the assessee had also explained the interest expenditure incurred by it was relatable to the business income of the asessee, which was non exempt. In view thereof, we do not find merit in the contentions raised by the revenue - Decided against revenue.
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Customs
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2015 (5) TMI 880
Validity of detention order - Non-supply of documents within the stipulated time in the language known to the detenue - Delay in execution of the detention order - Delay in disposal of the representation - Delay in passing the detention order - held that:- The petitioner was served with a detention order on 23.6.2014. While receiving the detention order the endorsement was made by the petitioner in his handwriting in English language and the acknowledgement was also signed in English language - after receipt of the detention order the petitioner filed a representation on 7.8.2014 before the Special Secretary-cum-Director General, CEIB, and also to the Chairman COFEPOSA Board. This representation was also made in English language. - petitioner was working in a company. The petitioner has been carrying on a business, which would entail filling up of forms and addressing letters and, thus, it cannot be said that the petitioner does not understand or is not fully conversant with the English language. - Decision in the case of Kubic Darusz v. Union of India [1990 (1) TMI 78 - SUPREME COURT OF INDIA] followed. As the petitioner could not be served in the ordinary way a look out circular was issued on 28.3.2014. The Department took steps under Section 7(1)(b) of the COFEPOSA Act. A copy of the order dated 31.3.2014 was published in the official gazette. A publication was carried out in the local newspaper and a report was also sent to the ADG, DRI, for filing the same before the concerned Chief Judicial Magistrate. - Department has been able to satisfactorily explain the steps taken by them to serve the petitioner. Representation is to be decided without any unreasonable delay and the explanation of the delay would depend on the facts and circumstances of each case. The objective of an expeditious disposal of the representation is closely associated with the liberty of a person. In the case of Rajamal (1998 (12) TMI 607 - SUPREME COURT), the detention order was quashed and the explanation rendered that the Minister was on tour for five days was considered to be unjustifiable. In the present case as well the respondent was aware that once the order of detention was passed a representation was likely to be made, hence, the same should have been decided within the shortest period of time. Delay of 8 months has not been explained. We have in the paragraph aforegoing noticed that the house of the petitioner was searched on 12.4.2013; his statement was recorded n 16.4.2013 and thereafter a proposal was sent on 14.6.2013 for issuance of a detention order; the screening committee in its meeting held on 28.6.2013 considered the proposal for preventive detention of the petitioner and approved the same. - The provisions of the COFEPOSA Act vests extra ordinary power in the Government to detain a person, without recourse to ordinary law of the land and without a trial by the Court, and thus, the power is to be exercised with due care and caution There is unexplained delay in passing the detention order of approximately 8 months. The chart showing the chronological sequence of events prepared by the respondents would show that the proposal was approved for preventive detention of the petitioner on 28.6.2013, however, the detention order was passed only on 18.2.2014, we are not satisfied with the explanation which is sought to be relied upon by the respondent in the counter affidavit as also in paragraph 25 of the detention order. Detention order was served upon the petitioner without any delay on the part of the respondent, as all necessary steps were initiated by the department to serve the petitioner. We are also of the view that the petitioner was conversant with the English language and petitioner has workable knowledge of English language and the department cannot be faulted for non-supply of the documents and the order of the detention in Bengali language. But there is unexplainable delay on the part of the department for deciding the representation of the petitioner. After passing of the detention order, the department was well aware that a representation is likely to be made, however, 17 days were taken to dispose of the representation, out of which it is claimed that there were six holidays, still it leaves a period of 11 days, which is considered to be an inordinate delay in the facts of this case. The petition must succeed even on the ground of not passing the detention order for a period of 8 months, after the proposal was accepted on 28.6.2013 - Decided in favour of petitioner.
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2015 (5) TMI 879
Denial of refund claim - Where and admittedly there is a nil assessment order, whether the assessee is entitled to claim refund without making a challenge to such assessment order - Held that:- As the provisional assessment as well as the final assessment in respect of all the bills of entry were nil assessment, the question of raising a challenge to the said orders before the Appellate Authority would not arise at all. The appellant cannot be said to be aggrieved by the said orders and consequently, the question of filing any appeal would not arise. The judgment of the Apex Court relied upon by the authorities which levied duties, would not be applicable to the present case. In the cases before the Apex Court, there was an assessment order levying duty which was not challenged. This is not the situation in the present case. In the present case, the assessment order was a nil assessment and no duties were levied and as such, the appellant cannot be said to be aggrieved by such order. In such circumstances, we find that the reliance by the Commissioner (Appeals) and CESTATE on the judgment of the Apex Court in the case of Priya Blue Industries Ltd. (2004 (9) TMI 105 - SUPREME COURT OF INDIA) is not justified in the present case. - appellant cannot be said to be aggrieved with the correctness of the order of nil assessment. The order sanctioning refund passed by the Assistant Commissioner dated 14/12/2007 is accordingly justified. Consequently, the orders passed by the Commissioner (Appeals) and the order passed by the CESTAT cannot be sustained and deserve to be quashed and set aside - Decided in favour of assessee.
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2015 (5) TMI 878
Application for restraining Respondent from invoking and encashing bank guarantees/pay orders - Held that:- The bank guarantees/pay orders were retained because the Petitioner having failed to discharge the export obligation and no certificate having been obtained in that behalf, there was a default in complying with the requisite provisions of the Customs Act, 1962 and the Rules made thereunder. It is for that purpose and to secure the revenue that this without prejudice arrangement was made. If the Revenue has any powers in terms of the rules and regulations to initiate legal proceedings, they are free to do so. They are equally free to pass such orders as are permissible in law. However, we cannot allow the retention of the bank guarantees/pay orders, as sought by the Respondents. The bank guarantees/pay orders be returned, duly cancelled, within a period of four weeks - Decided in favour of appellant.
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Corporate Laws
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2015 (5) TMI 877
Application for Scheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956 - Official Liquidator's observations regarding issuance of shares at a premium of ₹ 9370/-, disputed sales tax & Excise duty liabilities, Default in payment of TDS duly addressed - Held that:- In reply to the first observation made by the Official Liquidator, the petitioner companies in their reply dated 11th March, 2015 have submitted that the valuation report prepared by SMC Capitals Limited has recommended the share swap ratio of 8:100 based on the value per share of the transferor company and the transferee company i.e. ₹ 748.20 per share and ₹ 9,380/- per share for the transferor company and the transferee company respectively, thus, reflecting the fair price per share of the transferee company i.e. ₹ 9,380/- per share (including a premium of ₹ 9,370/- per share over the face value of ₹ 10/- per share). In reply to the second observation made by the Official Liquidator in para 14 of his report, the petitioners, while referring to Para 9 of the Scheme, have undertaken that post the Scheme becoming effective, all the pending proceedings of the transferor company shall not abate or be discontinued and instead the same shall continue in the name of the transferee company. The aforesaid undertaking is accepted and the petitioner shall remain bound by the same. In view of the aforesaid, the observations made by the Official Liquidator stand satisfied. No objection has been received to the Scheme of Amalgamation from any other party. The petitioner companies, in the affidavits dated 11th March, 2015 of Mr. Rajesh Bansal and Mr. Saurabh Bansal, authorized signatory of the transferor and transferee companies respectively, have submitted that neither the petitioner companies nor their counsel have received any objection pursuant to the citations published in the newspapers on 16th January, 2015. Considering the approval accorded by the equity shareholders and creditors of the petitioner companies to the proposed Scheme of Amalgamation and the affidavits filed by the Regional Director, Northern Region, and the Official Liquidator not raising any objection to the proposed Scheme of Amalgamation, there appears to be no impediment to the grant of sanction to the Scheme of Amalgamation. Consequently, sanction is hereby granted to the Scheme of Amalgamation under Sections 391 and 394 of the Companies Act, 1956. - Application for Scheme of Amalgamation approved.
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2015 (5) TMI 876
Application for reduction in issued, subscribed and paid-up share capital under Sections 100 to 105 of Companies Act, 1956 and other applicable provisions of the Companies Act, 2013 read with Companies (Court) Rules, 1959 - Held that:- It has been submitted by the petitioner that the equity shares of the petitioner company were listed and traded on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Delhi Stock Exchange (DSE) and Madras Stock Exchange (MSE). It is further submitted that one of the promoters of the petitioner company namely, Denso Corporation, holding 47.93% of the paid up capital of the company, vide its letter dated 26.04.2013 proposed to voluntarily delist the equity shares of the petitioner company from the aforesaid stock exchanges by acquiring upto 73,98,019 equity shares held by public shareholders in the petitioner company. Thereafter, Denso Corporation vide a public announcement dated 12.08.2013 made an offer to acquire the shares of the petitioner company and the final price for accepting the equity shares in the Delisting Offer was fixed at ₹ 145/- per equity share. It is further submitted that pursuant to the acquisition of the equity shares, Denso Corporation along with other promoter and promoter group shareholders of the petitioner company held 93.02% of the subscribed and paid up equity share capital of the petitioner company, as on 03.10.2013. It is further submitted that many of the shareholders for various reasons including change of address, improper contact details, misplaced share certificates and due to expiry of the offer date missed the exit opportunity given by the holding company and have been deprived of an opportunity to make liquid their investment, therefore, Denso Corporation gave a Final Exit Opportunity to remaining non promoter public shareholders, who had not tendered their shares in the Delisting Offer/whose tender of offer shares had been rejected in the Delisting Offer, to participate in the acquisition process for a period of one year from the date of delisting i.e. 05.11.2013 and is valid upto 04.11.2014. It is further submitted by the petitioner that as on 08.08.2014, the promoters of the petitioner company were holding 95.94% of the paid up capital of the company and the remaining 4.06% of the paid up capital of the company were held by non-promoters/public being approx. 8000 in number, which clearly indicate that large number of non promoter shareholders individually held insignificant shares. It is also submitted that even after sending the reminder letters to these shareholders, the said shareholders are not traceable due to various reasons and therefore the possibility of such shareholders offering their shares under the Final Exit Offer is highly improbable. It is further submitted that the Board of Directors of the petitioner company have decided to reduce the share capital of the company in accordance with the provisions of Sections 100 to 105 of the Companies Act, 1956 since in their view it is the only practical and economically efficient option available to the petitioner company in order to give exit opportunity to the shareholders since the shares held by them are no longer marketable and are illiquid stocks. Despite publication of notice, no objection has been received from any creditor or any member of the public. The petitioner company, in the affidavit dated 5th January, 2015 of Sh. N.P.S. Chawla, Advocate of the petitioner company has submitted that neither the petitioner company nor its counsel have received any objection pursuant to citations published on 20th November, 2014. Thus, there appears to be no legal impediment in allowing the present petition.In view of the averments made in the petition and there being no objection from any creditor or any member of the public, the petition is hereby allowed. - Application for reduction in Share capital allowed.
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PMLA
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2015 (5) TMI 875
Attachment of property - Money laundering Act - whether provisional attachment of the properties in issue, could have been passed without a charge sheet having been filed under Section 173 of the Cr.PC qua the scheduled offences. - breach of principles of natural justice - Held that:- Scheme of Act, as it now operates, is directed not only against persons and juridical entities which are prosecuted for scheduled offences by various agencies, such as the CBI, Customs, SEBI etc., but also operates qua persons who conceal, possess, acquire, use and project or claim proceeds of crime - A bare reading of the provisions, in particular, Section 5 would show that for the authorised officer (not below the rank of Dy. Director) to exercise power of provisional attachment, it is no longer necessary, that the person, who is in possession of any proceeds of crime should have also have been charged for commission of a scheduled offence. The Act 2 of 2013 has deleted Clause (b) of Sub-Section (1) of Section 5, as it stood prior to the amendment. Clause (c) of Sub-Section (1) of Section 5, as it stood prior to the 2013 amendment, is now shown as Clause (b) in the amended statute. - Consequently, the designated officer can provisionally attach a property which, does not concern a person charged with a scheduled offence as long as the following ingredient is found: he has reason to believe, based on the material in his possession, that a person is in possession of proceeds of crime and, such proceeds, are likely to be concealed, transferred or dealt with in any manner which may result in frustrating proceedings relating to confiscation of proceeds of crime. The reasonability of the grounds which lead to the formation of belief warranting provisional attachment is tested from the point of view of whether or not they are germane to the formation of belief that if, provisional attachment is not ordered, it could lead to frustration of proceedings under the Act. Therefore, if the grounds are relevant and have nexus to the formation of belief then, of course the designated/authorised officer would have the necessary jurisdiction to take action under the Act. What is required to be examined is not the adequacy or sufficiency of the grounds but the existence of belief. In coming to this conclusion, in my view, all that one is to examine, is that, whether there was some material which, gave rise to a prima facie view that if provisional attachment was not ordered, it would frustrate proceedings under the Act. Provisional order of attachment passed under Sub-Section (1) of Section 5 of the PMLA even though valid for 180 days requires the designated / authorised officer to file a complaint before the adjudicating authority within a period of 30 days from the date, when attachment is ordered. - A perusal of the details of the properties of the petitioners, which have been provisionally attached, would show that the designated / authorised officer has included within its ambit, essentially, properties, which were, clearly were acquired between 2009 and 2014. The petitioner no.1, in his statement dated 24.09.2014 made to the DOE gave details of immovable properties and bank accounts owned by his family members, which included properties owned by him and his wife as well Having regard to the material accompanying the impugned order and the discussion therein, one cannot but come to the conclusion that the designated / authorised officer had reason to believe that the properties in issue were involved in money-laundering, and that, if they were not attached, immediately, it could lead to the proceedings under the PMLA, being frustrated. Legislature, has excluded the requirement to issue notice or having to hear the person whose, property is sought to be provisionally attached as this power is vested in the designated / authorised officer to avoid and / or prevent a situation, which would result in, any proceeding, under PMLA, being frustrated. The PMLA provides for issuance of notice and hearing at the stage of section 8 proceedings before the adjudicating authority, after a complaint under Section 5(5) is filed, having regard to the nature of power vested in the designated / authorised officer. It is an emergent power, invested in a senior officer of the DOE to deal with a situation at hand, in the facts and circumstances of a particular case. The fact that a post facto hearing is provided under Section 8 of the PMLA, in my view, rules out, by necessary implication, the requirement to issue notice and of hearing at the stage of provisional attachment, under Section 5(1) of the Act. Therefore, complete opportunity was given to the petitioner to agitate and advance its case. As a matter of fact under PMLA, the decision of the adjudicating authority can be assailed by way of an appeal before the Appellate Tribunal. - No merit in petition - Decided against Appellant.
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Service Tax
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2015 (5) TMI 886
Condonation of delay - filing of appeal before the Commissioner (Appeals) - Applicability of Limitation Act - Revenue argued that, Normally, the assesses are taking a chance by filing a matter directly in the High Court which is always at the peril and risk of the petitioner, specially when delay is not condonable. This petitioner is not exception to "chance taking petitioner." - Held that:- Commissioner (Appeals) have no power, jurisdiction and authority to condone the delay beyond thirty days - Decision in the case of M/s. Flemingo (Duty Free Shop) Pvt. Ltd., Sandvik Asia Private Limited Versus The Commissioner of Customs (Appeal) And Others [2015 (1) TMI 22 - BOMBAY HIGH COURT] followed - decided against assessee.
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2015 (5) TMI 885
Denial of refund claim - Payment received in export of service in Indian rupees from Deutsche Bank - Held that:- FIRCs were issued and there is a specific certification that the payment has not been received in non-convertible rupees, which establishes that the payment received and mentioned in the FIRCs are other than non-convertible foreign exchange, in other words, the payment is in convertible foreign exchange. - out of the total payment to be made by the insurance broker in India to the foreign insurer was reduced to the extent of his brokerage and remaining amount was remitted to foreign insurer in the foreign exchange - when a foreign bank is maintaining Indian rupees in their account obviously, such Indian rupees was obtained in lieu of foreign exchange. Issue of admissibility as input service credit in respect of security services was not raised in the show cause notice. Therefore, denial of refund of ₹ 7,747/- and ₹ 1,051/-respectively is not correct. - impugned order deserves to be modified inasmuch as the impugned order in respect of ₹ 1,64,081/- is upheld and the order rejecting refund of an amount of ₹ 10,98,077/- is set aside - Decided in favour of assessee.
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2015 (5) TMI 884
Extended period of limitation - Maintenance or repair of computer software service - Period of levy of tax - held that:- Service Tax is not payable by the appellant for the period 9.7.2004 to 6.11.2005 under the category of 'Maintenance or Repair' service. - whereas the Board clarified vide its Circular on 17.10.2005 that software is 'goods', the show-cause notice in the present case was issued only on 2.1.2007 i.e. beyond the normal period of one year. In view of frequent changes in Circulars and legal provisions, appellant cannot be faulted for not paying Service Tax. The Commissioner also, in his order, did not impose the mandatory penalty under Section 78 which involves invocation of the extended period. Therefore, we find that the demand is also hit by limitation. - Decision in the case of Kasturi & Sons Ltd. Vs. UOI [2011 (2) TMI 76 - HIGH COURT OF MADRAS] followed. - Decided in favour of assessee.
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Central Excise
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2015 (5) TMI 881
Denial of Exemption claim - 100% EOU - additional duty of excise under the Finance Act, 1999 - Scope of Notification No.22/2003 - Held that:- In the notification under section 5-A(1) of the Central Excise Act, 1944, the Government exempted the duty of excise leviable thereon under the provisions specified therein, namely, Central Excise Act, 1944, Additional Duties of Excise (Goods of Special Importance) Act, 1957 and the Additional Duties of Excise (Textile and Textile Articles) Act, 1978. The intention was clearly to limit the exemption only in respect of the enactments specified in the notification. The Finance Act of 1999 was not one of them. - A plain reading of the notification itself makes it clear that the exemption was not to operate in respect of the additional excise duty levied under the Finance Act, 1999 - The Finance Act levying the additional excise duty was enacted only in the year 1999, i.e., after first notification of the year 1994. - Decided against assessee.
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CST, VAT & Sales Tax
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2015 (5) TMI 883
Validity of High Court's order - Order of refund when order already attained finality - Held that:- High Court should not have passed the order of refund as the assessment order passed by the assessing authority for the assessment year 1995-96 has attained finality. It is only when a rectification of application is considered and decided by the assessing authority then only the respondent would be entitled for refund of the tax paid. - Decided in favour of Revenue.
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2015 (5) TMI 882
Valuation under VAT - deduction of consideration / profit of sale of land - works contracts inter alia of the nature of construction and buildings - Constitutional validity and propriety of notification dated January 29, 2014 - challenge to Rule 58, 58 (1A) and 58 (1B) and the trade circulars 7 T of 2014 and 12 T of 2014 Held that:- The first essential characteristic of MVAT is it is a tax on transfer of property in goods, secondly, uniformity of incidence is also a characteristic of the tax and thirdly the collection of tax. MVAT can be imposed on assessable value determined with reference to transfer of goods at the stage as referred to in the table. It is legislature's power to legislate in respect of the basis for determining the measure of tax. The computation being made strictly in accordance with the express provisions under the rules, there is no warrant for confining the value as sought to be submitted by the assessee. It is open for the legislature to adopt any basis for determining the value of a taxable article. The measure for assessing the levy need not correspond completely to the nature of levy, and no fault can be found with the measure so long as it bears nexus with the charge. While MVAT is a levy on transfer of goods in a works contracts inter alia of the nature of construction and buildings, the stage of collection need not, in point of time coincide with transfer of goods. The MVAT is chargeable with reference to the value of goods being transferred in a works contract and the value is to be determined in express terms of the provisions. The Courts have always regarded and recognized that measure employed for assessing tax must not be confused with the nature of tax. There is clear distinction between subject matter of tax and the standard by which amount of tax is measured. The two elements are described as subject of tax and measure of tax. The levy of tax is defined by its nature and the measure of tax may be assessed by its own standard. A standard may be adopted as the measure of levy and may indicate nature of the tax but would not necessarily determine it. Whether prescription under the provisions according to the contention is inadequate and may be falling short but its incorporation would not be bad or illegal or ultra vires the constitution. In the process, in some cases, if there is any over payment of tax, the provision makes allowance for its refund and would not tantamount to tax on land. Legislature does not intend to levy tax on matters other than as are intended under the enactment. Even in case of undervaluation, after determination, till such time overpayment would be towards the tax on goods so long as land value is not revalued and it would continue to tax on goods up to this time, its nature being MVAT over and in excess on taxable value. Only on redetermination, in a particular case if amount is to be refunded, it cannot be said to be bad for being tax on land. Valuation of goods under Rule 58 of the MVAT Rules would let the proper authority to probe into transactions of land dealings by the developers, depending upon facts and circumstances of and evidence in particular case, as it would be open for the competent authority to make proper inquiry and seek details of the transactions and the price at which the property had been purchased. Investigation and inquiries incidental to valuation assessment and the recovery of tax are not precluded or prohibited under the scheme of the rules and there need not be any specific provision for the same, however, with a rider that said investigation or inquiry would not be necessary on vague and general grievances. - Decided against assessee.
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Wealth tax
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2015 (5) TMI 874
Exemption claim - Urban land - assessee submitted that since the property in question is not a vacant land but there was a building under construction over the said land, it cannot be treated as urban land u/s. 2(ea)(v) - Failure to furnish documentary evidence - whether the property subjected to Wealth Tax is an 'urban land' as per Section 2(ea)(v)- Held that:- Any area comprised within the jurisdiction of a municipality or Cantonment Board which has a population not less than 10,000 according to the land census or in any area which is within such distance not being more than 8 KMs from the local limits of any municipality or Cantonment Board as notified by the Central Government shall be treated as urban land. However, the said provisions also excludes certain categories of land from being treated as urban land if they satisfy conditions mentioned therein. Structure standing over the land during the relevant period being a half/semi-finished one cannot come within the exclusionary clause so as to take it out from the ambit of urban land. - even accepting assessee's claim that there was a building under construction over the land during the relevant time, but no documentary evidence has been brought on record to indicate approval of the appropriate authority for such construction. In course of hearing when the Ld. AR was specifically asked whether there is an approval of the appropriate authority for the construction, he admitted that there is no such approval. That being the case, the conditions of clause-1(b) to Section 2(ea) is not satisfied for claiming exemption from Wealth Tax. - Decision in the case of Commissioner of Wealth Tax and another Vs. Giridhar G.Yadalam [2007 (3) TMI 334 - KARNATAKA HIGH COURT] followed - Decided against assessee.
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